Fitch Ratings has assigned an 'AA-' rating to the following JEA, Florida
electric revenue bonds:
--$84.4 million electric system subordinated revenue bonds, 2012 series
--$114.7 million electric system revenue bonds, series three 2012B
The bonds are expected to price on July 24, 2012 (subordinated) and July
31, 2012 (senior). Proceeds will refund several of JEA's outstanding
electric revenue bonds for approximately 8% and 6.6% savings of the
refunded par amounts, respectively.
In addition, Fitch affirms the following JEA ratings:
--$1.4 billion electric system subordinated revenue bonds at 'AA-';
--$1.4 billion electric system revenue bonds at 'AA-'.
The Rating Outlook is Positive.
The bonds are secured by net revenues of the electric system, including
offsetting transfers from JEA's rate stabilization fund. The pledge of
net revenues for the subordinated bonds is junior to the senior bonds.
A default of the senior revenue bonds triggers a cross default of the
subordinate revenue bonds. The reverse does not hold.
KEY RATING DRIVERS
IMPROVED FINANCIAL FLEXIBILITY: Steady improvements in JEA's financial
flexibility over several years, including a threefold increase in cash
on hand to 107 days and some gains in equity levels to 16.2% have
contributed to the Positive Outlook.
HEALTHY DEBT SERVICE COVERAGE: Debt service coverage remained strong at
2.7 times (x) in fiscal 2011 versus Fitch's rating category median of
2.5x. The last of a four-year rate increase offset a 4.4% decline in
megawatt hour sales stemming from soft economic conditions.
COMPETITIVE RATES: JEA's electric rates are in line with the median for
Florida municipalities, despite recent increases to bolster the system's
financial metrics and manage higher costs.
ANTICIPATED DEBT REDUCTIONS: No planned offerings through fiscal 2016
will result in an approximately $800 million reduction of outstanding
debt, thereby improving JEA's still below-average
equity-to-capitalization ratio (16.2%). The rating category median,
including less capital intensive retail distribution systems, is 54.9%.
DIVERSIFYING FUEL SUPPLY: The electric system's diverse resource mix
includes approximately two-thirds natural gas-fired capacity, but coal
and other solid fuels constitute over half of generation. Management
continues to lessen the system's reliance on coal with new combustion
turbines and the addition of various renewable resources, as well as
with planned nuclear capacity from MEAG Power's Plant Vogtle units 3 and
GOOD SERVICE AREA: The service territory is economically diverse, there
is no concentration among the largest customers, and residential
customers compose a healthy 42% of system revenues.
STRONG MANAGEMENT: A proactive management team has an extensive program
to identify and mitigate system risks.
WHAT COULD TRIGGER A RATING ACTION
FINANCIAL STRENGTHENING: Continued improvement in JEA's financial
flexibility and equity ratios, coupled with the overall affordability of
its rates, could lead to a rating upgrade. Projections of approximately
2.5x debt service coverage through fiscal 2016 and the repayment of a
considerable amount of debt during the same period should aid this
IMPROVED FINANCIAL POSITION
JEA's financial performance has steadily improved over the past few
years from what was already a generally sound position. Rating pressures
in the mid-2000s were related to the system's limited financial
flexibility at the time. JEA's rates were among the lowest in the state,
and compression in its operating position ultimately ensued. However,
management embarked on a plan four years ago to systematically raise
rates, and the associated improvements in the utility's financial
metrics are becoming clearer.
Fiscal 2011 cash on hand improved to 107 days from 36 days in fiscal
2007, which was near the rating category median of 128 days. JEA's
equity-to-capitalization ratio likewise improved during the same period
to 16.2% from 13.5%, but remains below average. Debt service coverage
has remained strong at an average of 2.8x annually over the past five
The utility has no plans for major debt-financed investments in new
generation through 2020, which should benefit its weaker balance sheet
ratios over time. Capital spending for the electric system totals
approximately $739 million through fiscal 2016. Continued fuel
diversification and existing retrofits position JEA well to meet new and
proposed environmental regulations.
RATES REMAIN COMPETITIVE
JEA's residential electric rates are not subject to regulation and
remain competitive with the Florida municipal average. They have grown
over the past five years with higher fuel and environmental costs, as
well as management's concerted efforts to bolster the system's financial
metrics. However, the board approved a $4.14/1,000 kWh decrease in the
rate effective this July, given the more recent softening of fuel and
purchased power costs. An important credit consideration over the next
few years will be JEA's relative rate competitiveness and flexibility,
which are important tools for raising additional revenues.
BROAD SERVICE TERRITORY
JEA is one of the largest municipally-owned electric utilities in the
United States. The system serves approximately 420,000 customers located
throughout a 900-square mile service area that covers all of the city of
Jacksonville and portions of neighboring counties.
The area economy is diverse, and there is no concentration among the
system's largest customers, which compose just 13.6% of electric
revenues. Moreover, relatively stable residential customers make up a
healthy 42% of system revenues. Jacksonville's unemployment rate has
moderated to 8.3% (May 2012) versus 10.1% the prior year.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria,
this action was informed by information from CreditScope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 12, 2012;
--'U.S. Public Power Rating Criteria', Jan. 11, 2012;
--'JEA, Florida', March 11, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria
JEA (FL) (Electric Enterprise Fund)
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