Fitch Rates Florida Municipal Power Agency's $557MM ARP Revs 'A+'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' underlying rating to the following issues for the Florida Municipal Power Agency (FMPA) (totalling $557 million):

--All Requirements Project (ARP) revenue bonds, series 2008A;

--Refunding revenue bonds series 2008B and C.

Proceeds from the 2008A fixed-rate bonds will be used to fund construction of Cane Island Unit No. 4, a 300 megawatt, gas-fired, combined-cycle generation project; while 2008B and C fixed-rate bonds will refund auction rate securities. In addition, Fitch has affirmed the 'A+' ratings on the outstanding debt of the ARP, Stanton, Stanton II and Tri-City projects, and affirms the 'A' rating on the outstanding debt of the St. Lucie project. The Rating Outlook on all the bonds is Stable. The 2008 A, B and C bonds are expected to price on Sept. 4.

The series 2008B and C bond issues are the first in a series of several transactions for FMPA to refund approximately $903 million from the auction rate securities market. By the end of October 2008, FMPA expects to have refunded all auction rate securities, reissuing fixed-rate debt and variable-rate debt backed by letters of credit.

FMPA is a non-profit, joint-action agency with five separate power supply projects and one pooled financing project. Each project is independent from the others, and revenues from one project may not be used to pay the costs of another. In aggregate FMPA serves 30 member utility systems throughout Florida.

The ratings incorporate FMPA's

--diverse membership;

--long-term contracts with all of the projects' participants;

--formalized risk management practices;

--solid operating performance of its generating fleet; and

--improved fuel cost recovery, which is driven by volatile natural gas prices in the ARP.

FMPA still faces a number of challenges that may put pressure on its ratings. FMPA lacks a comprehensive power supply strategy including the replacement of power from contracts expiring in 2009-2013. FMPA must also cope with more limited new generation options due to Florida's moratorium on coal plant development. With rising fuel prices and a weakened Florida economy, there is potential for member cities to increase general fund transfers from their utility systems, possibly compromising the financial stability of these utilities.

Further, of 15 participants in the ARP, 3 have changed their status by either reducing their energy requirements (Vero Beach) or opting out of contract extension post 2036 (Starke and Green Cove). A fourth participant, Lake Worth, is conducting a study to determine how best to meet its future power supply needs. Fitch will continue to monitor this issue as it remains unclear what significance, if any, this may have in the agency's performance. However, these participants are still obligated to pay their original share of the debt on the projects in which they participate. Additionally, FMPA will experience a change in leadership as its general manager is expected to retire in September 2008.

Nonetheless, the projects' strengths that continue to support the 'A+' and 'A' ratings are:

--The 'A+' rating for the ARP reflects a diverse customer base, take-and-pay contracts through 2036 with its 15 members and the solid credit profiles of the five largest members: Jacksonville Beach (rated 'A+' by Fitch), Key West, Kissimmee Utility Authority (rated 'A'), Ocala (rated 'A+') and Vero Beach (rated 'A'). All have a Stable Outlook.

--The 'A+' rating on the Stanton, Stanton II and Tri-City projects reflects the strong crossover between member participation in these coal-fired projects and the ARP. Added support is derived from each project's court-validated, take-or-pay contracts. Although coal prices have increased recently, the coal-fired generation provides fuel diversity to ARP's mostly gas-driven power supply.

--The 'A' rating for the St. Lucie nuclear project is supported by its solid operating performance, court-validated, take-or-pay contracts, cost stability, and license extension till 2036 (Unit 1) and 2043 (Unit 2) from the Nuclear Regulatory Commission.

Looking forward, Fitch will monitor the following key credit drivers for potential rating impact:

--Stability of members' financial profiles given fuel price and economic pressures;

--Implementation of a sound power supply strategy as power supply contracts expire and FMPA changes its leadership;

--Impact of debt restructuring on FMPA's ability to pay St. Lucie bonds as scheduled.

A full rating report will soon follow and will be available at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.