Fitch Downgrades Granbury, TX's Util System Revs to 'A-'; Outlook Stable
Source: Business Wire
--Approximately $7 million utility system revenue bonds downgraded to 'A-' from 'A'.
The Rating Outlook is revised to Stable from Negative.
SECURITY:
Bonds are secured by a first lien on a pledge of net revenues of the combined utility system.
RATING RATIONALE:
--The rating downgrade reflects the combined utility system's current financial position, which has weakened over the past three years, leaving the utility with more limited financial flexibility during a period of customer growth.
--The utility's power supply, provided by Bryan Texas Utilities (BTU, rated 'A+', with a Stable Outlook by Fitch) under a 10-year fixed price contract, should favorably result in relatively stable power supply costs going forward.
--While not out of line with market prices, the new wholesale power contract, which began Jan. 1, 2008, was 32% more expensive than the previous agreement.
--The utility has exhibited an ability and willingness to align rates with the new contract, with four rate increases approved in the last four years. While the utility expected to partially draw down cash reserves, the unanticipated slowdown in sales resulted in a much larger draw on unrestricted cash, down to 19 days operating and maintenance expenses at fiscal year end 2009 from over 200 days in 2007.
--Senior lien bondholders benefit from the utility's debt structure. Senior lien bonds are senior to $3.1 million subordinate lien revenue bonds and $6.1 million of certificates of obligation (made as a below-the-line transfer payment), both of which fall after senior lien debt service in the flow of funds. Senior lien debt service coverage was 1.55 times (x) in 2009.
--Fitch notes that the city of Granbury (GO bonds rated 'AA-', with a Stable Outlook), while a small service territory (3,156 customers), has above-average economic indicators, has fared well through the current recession and remains a retail center for the surrounding communities (as many as 60,000 people during peak holiday seasons).
--Additionally, Granbury's designation as a primary regional water supplier and the potential increase in off-system water sales has the potential to generate strong margins for the utility. Although the treatment capacity is not currently sufficient to serve as a regional provider, the utility's interest in Granbury Lake is a valuable asset and could benefit the system's financial profile.
KEY RATING DRIVER(S):
--The Stable Outlook represents Fitch's expectation that budget adjustments, the recent rate increases and expenditure reductions, are sufficient to stabilize financial metrics after a three-year decline. The utility's debt service coverage and cash position should improve to be more in-line with the 'A' rating category medians.
--Fitch will monitor the ultimate nature of the utility's role as a wholesale water supplier: speed at which the project becomes operational, the type of contracts (length, costs, requirements), and additional management responsibilities of the utility.
CREDIT SUMMARY:
Granbury's combined utility including electric (distribution only), water, and sewer systems, is owned and operated as an enterprise system of the city of Granbury. Although the bonds are secured by the combined pledge of all three systems, the bonds' security is primarily electric system revenues, which account for 60% of revenues. The system is located southwest of the city of Fort Worth, receives all of its power through a fixed price contract with Bryan Texas Utilities (BTU) and serves approximately 3,000 customers within the city of Granbury, Texas.
Applicable criteria available on Fitch's website at 'www.fitchratings.com' include:
--'Revenue-Supported Rating Criteria' (Dec 29, 2009)
--'Public Power Rating Guidelines' (June 11, 2009).
Additional information is available at 'www.fitchratings.com'.
Contact:
Fitch Ratings, New York
Drake Richey, 212-908-0325
Michael Castracan, 212-908-1241
or
Media Relations:
Brian Bertsch, 212-908-0549
Email:
brian.bertsch@fitchratings.com
