Fitch Ratings has assigned an 'A-' rating to the following Utah
Associated Municipal Power Systems' (UAMPS) revenue bonds:
--Approximately $72.5 million Horse Butte Wind Project revenue bonds,
--Approximately $26.1 million Horse Butte Wind Project variable-rate
demand revenue bonds, series 2012B.
Proceeds of the bonds will be used to finance a 20-year prepayment of
electricity from the 57.6MW Horse Butte Wind Project (HBWP). The series
2012A and 2012B bonds are expected to price via negotiation on Aug. 16
and 21, respectively.
The Rating Outlook is Stable.
The series 2012 bonds are secured by a pledge and assignment of revenues
derived by UAMPS from the HBWP. Revenues consist primarily of payments
made by the 24 project participants pursuant to take-or-pay power sales
The series 2012B variable-rate bonds are expected to be backed by a
three-year, irrevocable letter of credit to be issued by Bank of
Montreal (Fitch long- and short-term Issuer Default Ratings of 'AA-' and
'F1+', respectively) nearer to closing.
KEY RATING DRIVERS
PROJECT-BASED WHOLESALE AGENCY: UAMPS is a project-based joint action
agency serving 45 mostly small-sized, unrated members through 15 legally
separate projects in an eight-state region of the western United States.
The HBWP, UAMPS' newest generation project, is expected to begin
commercial operations in August 2012.
TAKE-OR-PAY CONTRACTS: UAMPS' PSCs with each of the 24 HBWP participants
provide good bondholder protections, particularly as the project has no
operating history. The contracts are take-or-pay - requiring payment
irrespective of project output - and currently in force. In addition,
they extend to the later of the final maturity of the bonds or the
useful life of the project.
ENTITLEMENT STEP-UP: A 25% step-up provision provides additional
bondholder protection from a default of one or more participants with
the exception of the largest, Truckee Donner Public Utility District
(TDPUD), which maintains a 26.3% entitlement share. While bondholders
have direct exposure to TDPUD, Fitch believes the participant exhibits
good credit quality in support of the rating.
GOOD ECONOMIC INDICATORS: The project participants serve largely
residential customer bases in dedicated areas, which enhances revenue
stability. The participants are typically small with young demographics
that contribute to slightly below-average income levels. However, low
unemployment rates evidence the economic stability of the region.
MIXED PARTICIPANT FINANCIALS: High amounts of system equity correspond
with tighter operating margins at the participant level. However, each
participant has full rate-setting authority, which provides flexibility
to increase revenues on a timely basis. The participants' liquidity
metrics vary greatly.
ACHIEVING RENEWABLE GOALS: The participants will likely derive political
benefit from the project, given Utah's (and other states') renewable
energy goal. However, the cost of power will be somewhat higher than for
UAMPS' other power projects.
Fitch's primary rating consideration for this and UAMPS' other projects
is the operational and financial condition of the project participants.
Additional rating considerations include the start-up nature of the HBWP
and the extent of available liquidity.
UAMPS was established in 1980 as an energy services interlocal entity to
finance, acquire, and operate various projects for the generation and
transmission of electricity to its 45 members.
The Horse Butte Wind Project
The 57.6MW HBWP consists of 32 wind turbines located 15 miles east of
Idaho Falls in Bonneville County, Idaho. Construction of the project,
which began in November 2010, is complete after some delay, and
commercial operation is expected in August 2012. The projected capacity
factor of the project is 33.2% (p50), which is in line with industry
The expected cost of power is slightly higher than UAMPS' other power
supply projects but within range at an average of $73.39/MWh for the
initial 10 years. While the HBWP may not be as economically competitive
as some of UAMPS' other generation projects, there is a political
benefit. The HBWP will go some way toward helping the participants
achieve Utah's 2025 goal of providing 20% of retail electric sales from
Mixed Participant Metrics
The nine largest participants, representing 84.2% of total entitlement
shares, are generally small entities averaging just 13,000 customers.
However, the participants serve largely residential customer bases (52%
of sales), which typically provide for greater revenue stability. Young
demographics contribute to slightly below-average income levels, but
relatively low unemployment rates suggest economic stability.
The participants' mixed financial positions include little debt. This
creates high ratios of equity to capitalization averaging near 75%.
However, somewhat tighter operating margins - given the participants'
modest debt service obligations - make annual financial operations
appear less robust. Participant liquidity averages a sound 128 days cash
on hand, but the range among largest participants is wide.
UAMPS' take-or-pay PSCs with each of its project participants are
currently in force and terminate at the later of the final maturity of
the bonds or the life of the project. A step-up provision allows for an
increase in each participant's entitlement share by a maximum of 25%.
The step-up provides bondholders with some protection that a default by
several smaller members would not cause a default of the entire project.
However, bondholders do have direct exposure to the largest participant,
TDPUD, which maintains a 26.3% entitlement share of the project. Fitch
believes that TDPUD exhibits sufficient credit quality to support the
'A-' rating on UAMPS' series 2012 bonds.
Project Finances and Liquidity
The HBWP is structured similarly to UAMPS' other projects. Debt service
coverage is expected to be near 1.1x annually, and equity will remain
principally with the project participants.
Various sources of liquidity provide additional support for the rating.
A $1.75 million operation and maintenance reserve will be funded at
closing, and a rate stabilization reserve will be funded to $1.1 million
in equal parts over 18 months. In addition, two recently renewed lines
of credit totaling $25 million are available for general purposes across
the entirety of the system.
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.
This action was informed by information identified in Fitch's
Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria.
Applicable Criteria and Related Research:
'Revenue-Supported Rating Criteria', June 12, 2012;
'Utah Associated Municipal Power Systems (Payson Power Project Revenue
Bonds)', March 8, 2012;
'U.S. Public Power Rating Criteria', Jan. 11, 2012.
Applicable Criteria and Related Research:
U.S. Public Power Rating Criteria
Revenue-Supported Rating Criteria
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