News Column

Fitch Affirms Winter Park, FL's Electric Revs at 'AA-'; Outlook Stable

July 18, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'AA-' rating on the following Winter Park, FL revenue bonds:

--Approximately $59.8 electric revenue bonds, series 2005A, 2007, 2009A and 2009B.

The Rating Outlook is Stable.

SECURITY

Outstanding electric revenue bonds are secured by a first lien on net revenues of the city's electric system.

KEY RATING DRIVERS

SMALL DISTRIBUTION SYSTEM: The city of Winter Park, FL owns a small retail electric distribution system (the system) that serves a diverse, affluent and largely stable service territory located immediately outside of Orlando, FL.

SHORT-TERM POWER SUPPLY AGREEMENTS: While the city has made favorable progress with increasing the duration of its power supply agreements from just three years to six years for the bulk of its requirements, the length of the contracts remains somewhat short, exposing the city to supply risk that could lead to future cost volatility.

IMPROVING FINANCIAL PROFILE: Timely cost recovery and historical base rate increases have kept debt service coverage comfortably above 3.0x and increased the system's liquidity to a more acceptable level of about 25 days of cash on hand. Coupled with an undrawn $8 million line of credit, available liquidity is sufficient given the system's limited role as a distribution only system.

COMPETITIVE RATES PROVIDE FLEXIBILITY: The system's affordable retail rates relative to regional and statewide averages provide ample flexibility, and the ability and demonstrated willingness to adjust rates on a quarterly basis to recover changes in fuel costs ensures timely cost recovery.

REDUCTION IN DEBT LEVELS EXPECTED: Debt metrics have steadily improved from a previously high level over the last several years as capital needs continue to be fully funded from excess cash flow. The ratio of debt to funds available for debt service (FADS) now approximates the rating category median of 5.1x while equity has grown from a negative position following the system's 2005 purchase from Duke Energy to a more acceptable 21% of capitalization. Fitch expects this trend will continue as internal resources are expected to fund the entirety of capital needs over the next several years.

RATING SENSITIVITIES

TIMELY COST RECOVERY: Deviation from making timely rate adjustments to recover costs could exert downward pressure on the rating, particularly given the system's already narrow cash position and modest exposure to auction rate securities.

RENEWAL OF POWER SUPPLY AGREEMENTS: The city's ability to renew its power supply agreements in advance of stated expiration dates will continue to be a risk that Fitch will monitor.

CREDIT PROFILE

CHANGE IN POWER SUPPLIERS

Following the expiration of two three-year power supply agreements at the close of calendar 2013, the city elected to extend for one additional year a load following contract with Seminole Electric Cooperative, Inc. (SECI) and replace capacity from Duke Energy with purchases from Florida Power & Light (FP&L; IDR 'A'/Stable Outlook) and Orlando Utilities Commission (OUC; 'AA'/Stable Outlook). The contract with FP&L is for a fixed amount of capacity (23 MW) and expires at the end of calendar 2014. Purchases from OUC are made pursuant to a purchase power agreement (PPA) that runs through 2019.

The balance of Winter Park's future energy requirements will be satisfied through power supply agreements with Gainesville Regional Utilities (GRU; 'AA-'/Stable Outlook), Covanta and FP&L. The agreements with GRU and Covanta run through 2018 and 2024, respectively, and require Winter Park to purchase a fixed amount of capacity (20 MW combined). FP&L will provide the remainder of the city's requirements, as well as dispatch the capacity derived from GRU and Covanta.

The city's transition from shorter-term power supply agreements with the same expiration date to relatively longer-term agreements from a more diverse pool of suppliers with staggered expiration dates is viewed favorably by Fitch. While the still somewhat shorter duration of the agreements poses some risk, the current rating assumes the city will continue to be proactive in procuring sufficient capacity without service interruption.

IMPROVING FINANCIAL PERFORMANCE LIKELY TO CONTINUE

The electric utility's financial profile continues to strengthen, as does the city's other operating funds. The city relied historically on a city-wide pooled cash approach, which routinely left both the water and sewer and electric utilities with little or no cash on their respective balance sheets. Timely cost recovery in more recent years coupled with the implementation of historical base rate increases have provided for stronger net operating margins in the electric fund, which in turn has led to consistently high debt service coverage (DSC) and positive cash flow after meeting all obligations, including annual capital expenditures.

Financial projections through 2019 appear achievable and include the continuation of healthy debt service coverage in excess of 2.0x. The forecast assumes no change in electric base rates and does not reflect the issuance of additional debt.

MODEST CAPITAL NEEDS

The utility's five-year capital program is sized at a relatively affordable and manageable level, and is not anticipated to require additional debt. Proposed spending through fiscal 2019 totals $21.9 million, the vast majority of which will be for the continued undergrounding of electric lines.

SOUND ECONOMY UNDERPINS SERVICE AREA

The city's electric utility serves a very stable service territory that exhibits good diversity among ratepayers, high customer wealth levels, and consistently low unemployment, all of which contribute to near perfect revenue collection. Winter Park's low May 2014 unemployment rate of 4.9% continues a long trend of remaining below that of the broader region.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. Public Power Peer Study -- June 2014' (June 13, 2014);

--'U.S. Public Power Peer Study Addendum - June 2014' (June 13, 2014);

--'U.S. Public Power Rating Criteria' (March 18, 2014).

Applicable Criteria and Related Research:

U.S. Public Power Peer Study -- June 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749789

U.S. Public Power Peer Study Addendum - June 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750283

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=740841

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=840477

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Christopher Hessenthaler

Senior Director

+1-212-908-0773

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Ryan A. Greene

Director

+1-212-908-0593

or

Committee Chairperson

Dennis Pidherny

Managing Director

+1-212-908-0738

or

Media Relations

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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