August 31, 2016 - 4:48 PM EDT
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Fitch Rates Turlock Irrigation District & Tuolumne Wind Project Authority, CA Bonds 'A+'

Fitch Ratings has assigned an 'A+' rating to the following Turlock Irrigation District (TID), CA's obligations:

--$109,300,000 First priority subordinate revenue refunding bonds, series 2016.

Fitch has also assigned an 'A+' rating to the following Tuolumne Wind Project Authority (TWPA) revenue bonds:

--$178,775,000 TWPA refunding revenue bonds 2016 Series A.

In addition, Fitch affirms the 'A+' rating on the following outstanding obligations of TID, TWPA, and the Walnut Energy Center Authority (WECA) revenue bonds:

--$138,165,000 TID revenue bonds, series 2010A;

--$232,065,000 TID first-priority subordinated obligations, series 2011 and 2014;

--$240,100,000 WECA revenue bonds series 2010A, 2010B, and 2014A;

--$379,900,000 TWPA revenue bonds, series 2009A and 2009B.

The Rating Outlook on all bonds is Stable.

Bond proceeds from the first priority subordinate revenue refunding bonds will be used to refund TID's outstanding commercial paper notes, refund and defease the outstanding 2010 revenue bonds, and pay the costs of issuance. Bond proceeds from the TWPA revenue refunding bonds will be used to refund a portion of the outstanding TWPA 2009 bonds and pay the costs of issuance. The bonds will be sold via negotiation on Sept. 22, for the TID bonds, and on Sept. 27, for the TWPA bonds.

SECURITY

The first priority subordinated revenue bonds are secured by a subordinate lien on TID's net revenues, after payment of principal and interest on the outstanding revenue bonds. The TWPA bonds are payable solely by unconditional payments to be made by TID under the take-or-pay Power Purchase Agreement with TWPA.

KEY RATING DRIVERS

VERTICALLY INTEGRATED UTILITY: TID is a fully integrated utility providing electricity and irrigation water to a growing customer base in an economically challenged area of California's Central Valley. MWh sales and revenues are modestly concentrated in a relatively stable group of agricultural related businesses.

SOLID COVERAGE; STRONG LIQUIDITY: Fitch's calculated coverage of full obligations was above similarly rated peers in 2015 at 1.60 times (x). Liquidity levels remain strong, with 281 days cash on hand and 382 days liquidity at the end of 2015.

DIVERSE ENERGY SUPPLY: TID's power supply benefits from a diversity of fuel types and generation resources but is increasingly reliant on natural gas, particularly in drought conditions. Exposure to fluctuations in natural gas prices is moderated by the district's supply management program that includes a combination of supply contracts, owned natural gas reserves, and gas storage access.

ELEVATED DEBT LEVELS: TID's debt levels are high for the rating but have stabilized since the last of the district's major capital investments was completed in 2012. Future capital needs are expected to be manageable.

TIMELY RATE INCREASES: TID's solid financial profile is supported by its ability to recapture costs in a timely manner. The board raised electric rates by 2% and 4% in 2015 and 2014, respectively, and adopted higher fixed charges for irrigation customers. In addition, the district's semiannual power supply adjustment (PSA) passes through fuel and purchased power cost fluctuations without governing board approval for up to 1 cent per kWh.

RATING SENSITIVITIES

MAINTENANCE OF FINANCIAL METRICS: Turlock Irrigation District's satisfactory financial metrics and strong liquidity levels support the current rating and act as important offsets to the district's relatively high debt levels. An unwillingness to raise rates sufficiently to maintain comparable financial metrics could result in negative rating action.

CREDIT PROFILE

TID is a fully integrated utility that has exclusive rights to provide electric service within a 662-square mile territory that covers portions of Stanislaus, Merced, and Tuolumne Counties in California's Central Valley. The district also supplies irrigation water to a smaller 308-square mile area within its broader electric service area.

The district's electric and irrigation business lines are reported on a consolidated basis and revenues from both operations are available to pay outstanding debt. However, the vast majority of TID's revenues are derived from its electric operations, which accounted for approximately 94% of operating revenues in 2015.

SOUND FINANCIAL PROFILE

The district's financial metrics support the current rating. While Fitch-calculated debt service coverage is below the median for the rating category, this is offset by the district's lack of a transfer payment, solid coverage of full obligations, strong liquidity levels and demonstrated rate flexibility.

Fitch-calculated debt service coverage was 1.72x and 1.43x in 2015 and 2014, respectively. The district's coverage of all obligations, which is a Fitch-calculated metric adjusted for transfers and purchased power, remains satisfactory for the rating and above similarly rated peers at 1.60x in 2015.

The district's liquidity levels are strong with 281 days cash on hand at the end of 2015. Day's liquidity on hand, which includes the available capacity from TID's two commercial paper programs, was strong for the rating at 382 days.

HIGH DEBT LEVELS

TID's debt levels are high for the rating category at $11,592 per customer, and equity to capitalization is relatively low at 20.1%. Rating concerns regarding the high debt profile are offset to some degree by the district's strong cash reserves and moderate future borrowing plans. Debt-financed capital needs, including WECA and TWPA identified needs, are projected at $141.6 million from 2017 to 2021.

Additional debt could be issued as part of the Don Pedro Dam relicensing process, if necessary, to increase generator capacity. Any increased capacity would be eligible as a renewable resource. The timing and potential amount are uncertain at this point.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/site/re/750012

U.S. Public Power Rating Criteria (pub. 18 May 2015)

https://www.fitchratings.com/site/re/864007

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011072

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011072

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Matthew Reilly, CFA
Director
+1-415-732-7572
Fitch Ratings, Inc.
650 California St, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Kathryn Masterson
Senior Director
+1-512-215-3730
or
Committee Chairperson
Dennis Pidherny
Managing Director
+1-212-908-0738
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
alyssa.castelli@fitchratings.com


Source: Business Wire (August 31, 2016 - 4:48 PM EDT)

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