The Rating Outlook is Stable.
The bonds are secured by a mortgage interest in substantially all of SMEPA's tangible and certain of its intangible assets.
KEY RATING DRIVERS
SOLID COOPERATIVE PRINCIPLES: SMEPA benefits from solid electric cooperative principles, and board-supported strategies to pursue a balanced resource portfolio, and improve cash flow and liquidity through its current period of high capital investment.
EVOLVING POWER SUPPLY PORTFOLIO: SMEPA's power supply portfolio continues to evolve reflecting the expansion of existing resources, the expiration of certain power purchase agreements, and the acquisition of three natural gas-fired units totaling 837 MW, and the planned acquisition of a 15% share of a new integrated gasification combined cycle (IGCC) project located in
SIZABLE CAPITAL PROGRAM: Capital spending from 2014-2016 will remain well above historical levels and approach
IMPROVING MEMBER PERFORMANCE: Member cooperative performance continues to gradually improve. Aggregate member ratios for times interest earned (TIER, 3.56x); debt service coverage (DSC, 2.49x); and equity/capitalization (58%) in 2013 were all higher than in 2011.
COMPETITIVE ELECTRIC RATES: SMEPA's wholesale rates, as well as member residential rates, are expected to rise but remain in line with other statewide electric providers despite the cooperative's planned investment in new generation.
LIQUIDITY REMAINS WEAK: Cash on hand remained weak at 11 days at year-end 2013 and below Fitch's 'A-' category median (70 days). Access to long-term bank facilities totaling
SIGNIFICANTLY HIGHER FIXED COSTS: A significant increase in fixed costs or cost overruns related to SMEPA's share of the
MAINTENANCE OF STRONGER METRICS: Maintenance of the cooperative's stronger financial metrics through the proposed construction cycle would be viewed positively.
SMEPA is a not-for-profit generation and transmission (G&T) cooperative that provides wholesale electric service to 11 retail electric distribution cooperatives located in
SMEPA's members serve a region covering more than 32,000 square miles. The members serve a population of nearly 1 million and a customer base of roughly 415,000. Residential customers accounted for 56% of total energy sales in 2013. A well-diversified base of commercial and industrial customers accounted for nearly all of the remaining sales. Energy sales and customer growth throughout the member service area has been slow, but steady. Income levels in much of the area served by the SMEPA members remain below the state average.
REDUCED RELIANCE ON PURCHASED POWER
SMEPA's reliance on power purchased from third parties, including Mississippi Power Company (MPC; Fitch Issuer Default Rating of 'A-'), to meet the energy demands of its membership declined in 2013 following the acquisition of three natural gas-fired units totaling 837 MW (the
REBALANCING OF RESOURCES UNDERWAY
SMEPA is in the midst of its strategy to rebalance its energy supply portfolio, adding new owned generating capacity and replacing several large purchased power agreements. Significantly higher capital expenditures and related borrowings have been incurred as a result, and are expected to continue over the near term. However, net margins and coverages consistent with SMEPA's board-approved policies are expected to moderate debt leverage at approximately 81%-83% of total capitalization through 2016.
SOLID AND STABLE FINANCIAL PERFORMANCE
SMEPA reported continued solid and stable performance in 2013 as net margins have remained in line with historical levels of approximately
SMEPA's total debt outstanding was approximately
Additional information is available at 'www.fitchratings.com'.
--'U.S. Public Power Peer Study --
--'U.S. Public Power Peer Study Addendum -
--'U.S. Public Power Rating Criteria' (
--'2014 Outlook: U.S. Public Power and Electric Cooperative Sector' (
2014 Outlook: U.S. Public Power and Electric Cooperative Sector (Calm Under Pressure)
U.S. Public Power Rating Criteria
U.S. Public Power Peer Study --
U.S. Public Power Peer Study Addendum -
Source: Fitch Ratings
Most Popular Stories
- Toxic Algae Threatens Florida Fishing, Tourism
- Hispanic Groups Lead Voter Registration Drive
- Fed Signals It Will Keep Key Rate at Record Low
- Plus-Size iPhones Live Up to The Hype
- Eva Mendes Gives Birth to a Baby Girl
- FedEx Adding 50,000 Holiday Jobs
- Stocks Rise Before Fed Statement
- Occupy Wall Street Buys Up Student Debt
- Cool Features on Today's New iOS 8
- Kohl's Hiring 67,000 for the Holidays