The Rating Outlook is Stable.
Bonds are secured by net revenues of the agency, which are derived from payments received under take-or-pay power supply contracts with the three member cities.
KEY RATING DRIVERS
STABLE MEMBERS: The 'BBB+' rating reflects the stable credit quality of the underlying members. SRMPA's members are characterized by a small but primarily residential customer base and slow growth, and negligible distribution system debt but above-average SRMPA debt (approximately
TAKE-OR-PAY AGREEMENT: SRMPA's members have unconditional take-or-pay power purchase agreements with a 100% step-up provision. Fitch notes, however, that given the size of each member a default by any individual member may be difficult to absorb by any other member.
LONG-TERM FIXED-PRICE SUPPLY: SRMPA's electricity requirements net of its share of federal hydro purchases are met under a fixed-price requirements power supply agreement (RPSA) with
RATE COMPETITIVENESS: Wholesale rates to members have remained steady despite some increases associated with below-average hydro generation. The rates of SRMPA participants are now competitively priced given rate increases at neighboring systems.
COUNTERPARTY RISK: While the RPSA between SRMPA and Entergy is backed up by a purchase money security interest in
MEMBER CREDIT QUALITY: The rating on the bonds is based on the credit quality of the members together with the step-up provisions that mitigate against a payment default. A change in the credit quality of the members could affect the rating.
SRMPA is a municipal corporation organized to provide full requirements electric supply to its three members located in eastern
Take-or-Pay Contracts with Members
Member's power supply needs are met pursuant to unconditional take-or-pay contracts that run through 2021, thereby matching up with the maturity of the outstanding bonds. The take-or-pay contracts have an unlimited step-up provision. SRMPA does not own any generation, but receives its power from Entergy under the RPSA. The RPSA was entered into in exchange for SRMPA's ownership interest in a coal plant. SRMPA is also entitled to a portion of the output of two federal hydro projects and Entergy's contract obligations are net of the hydro output.
Fitch notes the agency's strategy, as part of
The agency has generally exhibited stable financial performance with debt service coverage (DSC) historically ranging between 1.2x and 1.3x. However, Fitch calculated DSC for fiscal 2013 slipped to 1.1x, due to cooler than normal summer weather and higher operating costs related to unanticipated substation and infrastructure work. In order to meet the 1.20x DSC covenant required under the 2012 bond indenture, SRMPA raised rates for the month of
Additional information is available at 'www.fitchratings.com'.
--'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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