The bonds are scheduled to price via negotiation the week of
In addition, Fitch affirms the following ratings:
The affirmation of the CP notes considers the anticipated effectiveness of a new
Fitch also assigns an 'A+' rating to the CP bank note, which is a promissory note evidencing NPPD's obligation to the banks for any draws made on the new revolving credit facility.
The Rating Outlook is Stable.
General revenue bonds are secured by net revenues of the district's electric system (the system). The 2014 series A and series B bonds will also be secured by a cash funded debt service reserve.
The CP notes are secured by funds pledged under the resolution, including net revenues of the district. The notes are subordinate to the pledge securing NPPD's approximately
KEY RATING DRIVERS
REGIONAL WHOLESALE PROVIDER: NPPD functions principally as a competitively priced wholesale electric provider serving all or part of 86 of
PRESSURE FROM EXPIRING CONTRACTS: Wholesale contracts with 48 wholesale municipalities, 24 public power districts (PPDs) and one electric cooperative representing nearly half of the district's total revenue base could begin expiring on
STRONG FINANCIAL PROFILE: Debt service coverage has remained at a healthy level, averaging 1.5x over the prior five years, while liquidity has more than doubled over the same period. The district ended fiscal 2013 with 188 days cash on hand, well above the rating category median of 96 days. Fitch expects similar results to continue based on the district's financial forecast through 2020.
DIVERSIFIED POWER SUPPLY RESOURCES: Power supplied by NPPD is derived primarily from a portfolio of owned generating assets and purchased power agreements. Available capacity is fairly diverse by fuel type and number of units with no single resource accounting for more than 25% of total available capacity. NPPD's coal-fired generating resources are equipped with controls expected to meet environmental regulations, although longer-term pressures could require costly investment.
ROBUST LIQUIDITY: The 'F1+' rating on the CP program is supported by NPPD's ample internal liquidity sources - including a
LOSS OF WHOLESALE CUSTOMERS: The district's inability to make measureable near-term progress towards renewing expiring wholesale agreements and stabilizing long-term demand requirements will likely result in negative long-term and short-term rating action. Although potential termination remains over eight years away, the prevailing uncertainty of the district's service requirements is likely to increasingly frustrate long-term planning efforts.
LOAD REDUCTION: While not anticipated, considerable use of the load release provision in the wholesale contracts could reduce sales over time, further narrowing the base on which fixed costs must be recovered.
The district's considerable service area excludes the state's two largest cities,
EXPIRATION OF WHOLESALE CONTRACTS APPROACHING
Wholesale contracts for 48 of the municipalities, 24 PPDS and one electric cooperative served by NPPD representing nearly half of the district's total revenue base expire as soon as
While only three customers have exercised either contract provision to date, Fitch remains concerned that sizeable reductions in wholesale requirements could nonetheless ultimately occur, leading to compressed operating margins and ultimately requiring remaining customers to absorb higher electric rates needed to support the district's outstanding fixed obligations. Fitch notes that approximately half of the district's currently outstanding debt matures beyond 2021 and additional long-term maturities are anticipated.
The customers' obligation to provide five years notice when terminating contracts provides some comfort as it allows NPPD time to adjust its power supply resource plan accordingly and moderate the impact of any load loss. However, as the termination date approaches prevailing uncertainty related to the district's service requirements could frustrate long-term resource planning and result in additional cost and rate pressures.
The district's competitive wholesale rates and reportedly good relations amongst its customers should aid the district in its efforts to extend the expiring contacts. Nevertheless, Fitch will continue to monitor the district's ability to retain its existing wholesale customers and assess management's response to changes in customer composition and load reduction.
ROBUST FINANCIAL METRICS
Debt service coverage has remained relatively strong, averaging nearly 1.5x over the prior five years, and improving to 1.7x in fiscal 2013. Management prudently targets a 1.5x coverage ratio. Liquidity has more than doubled since 2008, leading to a robust 188 days cash on hand at the close of fiscal 2013. Other resources, including
Financial projections through fiscal 2020 indicate little change in financial performance. Annual debt service coverage rises slightly in fiscals 2016-2017 but averages closer to 1.5x through the forecast period. In addition, liquidity should remain at a sound level given the healthy excess annual cash flow after satisfying all obligations, including debt service and projected pay-go for capital projects. Fitch considers the assumptions included in the forecast to be reasonable and the projected results achievable.
The board's demonstrated willingness to raise base rates in recent years is viewed favorably. NPPD's wholesale rates, despite rising by an annual average of about 8.5% over the prior six years, have remained relatively competitive in comparison to other regional wholesale systems. Conversely, the district's retail rates are high compared to other regional retail systems, which could limit future flexibility. Retail rate increases in recent years have been similar to adopted wholesale rate hikes. No additional retail or wholesale rate increases were enacted for fiscal 2014, and financial projections through fiscal 2020 project nominal base rate increases averaging about 2% annually.
NPPD meets the majority of its customers' load requirements with a fairly diverse resource portfolio expected to be sufficient to meet future load growth for at least the next 10 years. The system's 3,684 MW of total resources exceeded 2013 peak demand (2,873 MW) by a significant margin. The largest owned baseload resource is the 1,365 MW, coal-fired, steam-electric generating
Both GGS and the district's other coal-fired station,
REPLACEMENT REVOLVING CREDIT FACILITY
The 'F1+' rating on the CP program is supported by NPPD's internal liquidity, which includes an existing
In advance of the existing revolving credit agreement's
Additional information is available at 'www.fitchratings.com'.
This rating action was informed by information identified in Fitch's U.S. Public Power Rating Criteria.
--'U.S. Public Power Rating Criteria' (
--'U.S. Public Power Peer Study Addendum -
--'2014 Outlook: U.S. Public Power and Electric Cooperative Sector' (
U.S. Public Power Rating Criteria
U.S. Public Power Peer Study Addendum --
2014 Outlook: U.S. Public Power and Electric Cooperative Sector (Calm Under Pressure)
Source: Fitch Ratings
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