Fitch Rates Lower Colorado River Authority's (Texas), $300MM Rfdg & Improve. Revs, Ser 2009 'A+'

SAN FRANCISCO - (BUSINESS WIRE) - Fitch Ratings has assigned an 'A+' rating to Lower Colorado River Authority's (LCRA) refunding and improvement revenue bonds series 2009 expected to be issued in an amount up to $300 million. The Rating Outlook is Stable. In addition, Fitch affirms LCRA's outstanding revenue bonds at 'A+' and LCRA's tax-exempt and taxable commercial paper (CP) programs at 'F1+'. Proceeds from the 2009 bonds will refund outstanding CP, fund certain improvements to the system, and pay costs of issuance. The bonds are expected to price June 17, 2009, depending on market conditions.

Key rating factors supporting the 'A+' rating include a competitive and diverse mix of power resources, a large geographic customer base in central Texas with 43 wholesale electric customers; a rate structure that provides timely fuel and purchased power cost recovery, and stable financial performance. Consolidated debt service coverage has been historically consistent at approximately 1.4 times (x), which is considered adequate for a wholesale power provider in the rating category.

Key drivers for the rating in the next few years include competition for long-term power supply to LCRA's traditional wholesale customers and large capital needs associated with new generation construction and environmental improvements. LCRA has signed amended contracts with 31 customers for 56.5% of its load. Discussions are ongoing with the remaining 12 customers. The extended contracts to date have varied terms. Of note are terms that include an ability of the customer to scale down (referred to as 'load-release') its all-requirements purchases from LCRA over time to 65% of the original all requirements load. Fitch is concerned with the amount of load (43.5%) under contracts that extend only to 2016 as compared with the remaining load that have signed contract extensions to 2041. If LCRA has significantly lower load after 2016, its cost structure and source of revenues to service its existing debt obligations would change and could result in credit implications. Fitch will be monitoring LCRA's ability to adequately balance future load requirements with its current and potential new power supply resources as well as debt service payments associated with existing assets.