Fitch Affirms Grand River Dam Authority, OK's Revs at 'A'; Outlook Stable
Fitch Ratings has affirmed the following Grand River Dam Authority, OK (GRDA, or the authority) revenue bonds at 'A', with par amounts as of Dec. 30, 2011:
--$18,636,340 series 2002B;
--$556,420,000 series 2008A;
--$162,185,000 Series 2010A;
--$77,130,000 series 2010B (federally taxable).
While Fitch considered the series 1995 bonds in its previous analysis and commentaries, the rating history was not reflected on Fitch's web site. Therefore, Fitch explicitly assigns an 'A' rating to the series 1995 parity revenue bonds.
The Rating Outlook is Stable.
GRDA's outstanding revenue bonds are secured by net revenues of the authority. The pledge includes net transfers from its rate stabilization fund.
KEY RATING DRIVERS
LOW CUSTOMER RATE: GRDA supplies wholesale and retail electric power to 105 customers principally in northeastern Oklahoma. The authority's diversified generating assets - including coal, natural gas, and hydroelectric resources - have benefitted its customer rate, which is typically among the lowest in the region.
CONTINUED RESOURCE PLANNING: Management is nearing a decision on retrofitting or replacing existing coal-fired assets that will define future capital costs and likely factor into subsequent rating actions.
POTENTIALLY IMPROVING COVERAGE LEVELS: GRDA's financial position has only modestly strengthened since its 2009 low, when its annual debt service obligations began a four-year spike. Forecasted debt service coverage could reach healthier levels of upwards of 1.4x-1.5x annually within the next three years, pending the outcome of the authority's capital financing plan and a decline in its existing debt service obligations.
CUSTOMER BASE OFFSETS: Less than half of GRDA's customer contracts (by revenue) extend for the life of its outstanding debt, and its customer base is highly concentrated among the 10 largest customers. However, retail customers are prohibited from switching suppliers without mutual consent, customer classes are diverse, and GRDA's write-offs have been negligible, all of which help provide the authority with a predictable revenue stream over the long term.
UNEVEN SALES GROWTH: Historical sales growth has been stronger than state and national averages. However, it has been uneven in recent years and is trending lower in 2012. Forecasted growth averages 4.6% annually through 2015, which is higher than the authority's 10-year average to 2011 (3.5%).
WHAT COULD TRIGGER A RATING ACTION
FINANCIAL IMPROVEMENT AND SALES GROWTH: Sustained improvement in the authority's cash flow metrics to the higher end of the forecasted range and a resumption of healthy sales growth could ultimately lead to positive rating action.
GRDA supplies wholesale and retail electric power to 105 customers principally in northeastern Oklahoma. However, the authority's service territory directly or indirectly extends to 75 of the state's 77 counties, as well as to portions of three neighboring states. GRDA has a diverse resource base of five coal, natural gas, and hydroelectric assets that provide 1,728 megawatts of capacity, which approximates its customer load requirement. The authority's low rates underpin its competitive position, and its financial metrics are broadly forecasted to rebound over the next three years as its total debt service obligations decline and sales growth resumes. Board willingness to support these higher metrics will be an important credit factor in subsequent rating reviews.
Fitch expects to publish a full rating report on GRDA in the near future.
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;
--'U.S. Public Power Rating Criteria', Jan. 11, 2012.
Applicable Criteria and Related Research:
U.S. Public Power Rating Criteria
Ryan A. Greene, +1-212-908-0593
One State Street Plaza
New York, NY 10004
Dennis Pidherny, +1-212-908-0738
Alan Spen, +1-212-908-0594
Elizabeth Fogerty, +1-212-908-0526