Fitch Rtes Colorado Springs Util. System's 2008B/C Util System Rfdg Bnds 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an underlying 'AA' to Colorado Springs, CO (the city utilities system) $62 million series 2008B utilities system refunding revenue bonds and $50 million series 2008C utilities system improvement revenue bonds. In addition, Fitch affirms the underlying rating of the city's outstanding $1.53 billion parity lien utilities system revenue/refunding and system improvement revenue bonds at 'AA'. The Rating Outlook is Stable.

Proceeds of the 2008B bonds will be used to refund certain of the city's outstanding series 1998A, 2001A and 2003A bonds. The 2008C proceeds will fund a portion of the Southern Delivery System raw water project. The bonds are secured by a net revenue pledge of the city's combined utilities system. Effective in 2007, the city no longer has any senior lien bonds outstanding and the senior lien is closed. The ratings take into account the Colorado Springs Utilities System's (CSU) plan to issue $50 million, series 2008A variable rate demand utilities system improvement revenue bonds over the next month. This new money issue will be assigned a rating closer to transaction pricing as the 2008A bonds will be supported by a liquidity facility in the form of a standby bond purchase agreement. The 2008B and C bonds are scheduled to price in October 2008.

CSU's strong credit rating reflects its diverse revenue stream as a combined utility system, with four major business segments (electric, natural gas, water, and wastewater), competitive retail rates, consistent financial performance, relatively low-cost power supply mix, and diverse customer base. CSU's power resource mix is mostly reliable, low-cost coal-fired generation (roughly 66% of total energy requirements), plus long-term hydropower and natural gas purchases. CSU's management team has also developed extensive business practices in the areas of capital planning, financial forecasting, risk management, and management succession planning.

Credit concerns center on CSU's large capital plan (estimated at $1.6 billion through 2013) and the impact of the economic slowdown on utility sales and revenues. With respect to the capital expenditure program, CSU has established a target to reduce the size of the five year capital plan by 20%, without affecting the systems' reliability or service. CSU has been successful thus far, as the capital program is roughly $100 billion less through 2012 than what was originally forecast in last year's capital plan. CSU is closely tracking the slowing of utility sales across its four business segments and has adjusted forecasted sales growth accordingly.

A key component of CSU's rating is the continued ability to implement planned rate increases (requiring City Council approval) in a timely manner, in order to maintain historical margins and liquidity. For fiscal year-end 2007, debt service coverage was sound at 1.87 times (x), excluding contributions in aid of construction (CIAC) from revenues) which have notably declined in recent months with the real estate market downturn. Liquidity is still solid at 129 days operating cash - in line with Fitch's peer financial medians for 'AA' rated utilities. Going forward, given moderately lower projected sales growth, combined with higher projected rate increases (to replenish the revenue losses from lower sales and CIAC revenues), CSU should be able to maintain adequate financial performance ratios commensurate for the rating category.

CSU is a combined utility system serving customers in the city of Colorado Springs and surrounding suburban communities. Revenues consist of a mix of: electric (52.6%), natural gas (28.7%), water (11.1%), wastewater (7.2%), and other (0.4%). CSU is owned by the City of Colorado Springs and operates as an enterprise fund of the city.

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