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
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