The Rating Outlook is Stable.
Bonds are special limited obligations of SCPPA and payable solely from revenues received from the members participating in the Mead Adelanto,
KEY RATING DRIVERS
STRONG PARTICIPANT CREDIT QUALITY: The rating reflects the credit profiles of the largest participants in each of the projects and their respective project participation shares. Project participants rated 'AA-' or higher by Fitch account for 66.8%, 71.3%, and 93.2% of the Mead
TAKE OR PAY OBLIGATION: Bondholders are secured by an absolute and unconditional take-or-pay obligation of project participants, paid as an operating expense, for their share of project's costs as outlined in the transmission service contracts between each participant and SCPPA.
IMPLIED STEP-UP PROVISION: The transmission service contracts are viewed as having an implied step-up provision through the ability to amend the budget for unexpected costs, including a participant default.
STRONG MARKET VALUE: The projects provide SCPPA members with 500-kilovolt (kv) transmission capacity to import power from out-of-state SCPPA owned generation projects.
SUFFICIENT LIQUIDITY: Liquidity at each project is minimal. General reserves held by the members at SCPPA should cushion any potential timing delay between a participant default and budget amendment.
CHANGE IN PARTICIPANT CREDIT QUALITY: The rating is based on the credit quality of the project participants together with the implied step-up provisions that mitigate the impact of a payment default. A change in the credit quality, especially of the larger project participants, could affect the ratings.
DECREASE IN SCPPA RESERVES: Healthy reserves held at SCPPA provide a timing buffer in the event that a participant defaults and an amended budget process is needed. A significant decrease in reserves would be a rating concern, although no change in overall reserve levels is anticipated.
SCPPA Project Supported by Transmission Service Contracts
SCPPA is a joint-action agency that owns and operates electric generation, transmission, and physical gas assets on behalf of its 14 members, all of whom are municipal electric utilities in southern
In the case of the Mead Adelanto and
TRANSMISSION SERVICE CONTRACT TERMS
Each of the participants have executed transmission service contracts with SCPPA that govern the obligations of the project participants in addition to the bond indentures. Participants are required to pay operating and fixed (including debt) costs of the project as outlined by an annual budget prepared by SCPPA. Payment by participants to SCPPA is unconditional and considered take-or-pay, whereby members are required to make a payment whether or not the transmission lines are operational. Obligations to SCPPA by participants constitute operating expenses of each respective utility system.
The transmission service contracts do not include explicit step-up requirements in the event a participant defaults. However, the structure of the contracts, through the amended billing procedures, provides protection if a member defaults and additional costs need to be allocated to non-defaulting participants. SCPPA sends a consolidated bill for all of its projects to participants on a monthly basis.
In the event of nonpayment by a participating member, SCPPA's board is required adopt an amended budget after 30 days notice that will cover the remaining fiscal year. In the amended budget, the shortfall would be reallocated to all project members, including the defaulting member. If the defaulting member continued to default on its payment, those amounts would be amended in the following month and the process would continue.
SLIM FINANCIAL PERFORMANCE TYPICAL FOR JOINT ACTION PROJECT
As a joint-action agency, SCPPA and its associated projects report slim financial margins, as payments from members are meant to only cover associated costs. Debt service coverage is typically right above 1.0x. However, in fiscal 2013 the Mead Adelanto and
The Mead Adelanto and
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from CreditScope.
--'U.S. Public Power Rating Criteria' (
--'U.S. Public Power Peer Study' (
U.S. Public Power Rating Criteria
U.S. Public Power Peer Study --
Source: Fitch Ratings
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