Fitch Affirms Bryan Texas Utilities, TX City Electric Sys Revs at 'A+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--As part of ongoing surveillance efforts, Fitch Ratings has affirmed the ratings on Bryan Texas Utilities, TX's (BTU, or city system) city electric system revenue bonds series 2005, 2006, 2007, 2008, 2009 and 2010 at 'A+'.

While Fitch considered the series 2001 bonds in its previous analysis and commentaries, the rating history was not reflected on Fitch's web site. Therefore, Fitch explicitly assigns an 'A+' rating to the series 2001 parity electric system revenue bonds.

The Rating Outlook is Stable.

SECURITY:

The bonds are secured by net revenues of the city electric system.

KEY RATING DRIVERS:

STABLE ELECTRIC OPERATIONS: The affirmation reflects a stable service territory that is increasingly urban, competitive rates, a sound hedging policy and increasing operating income.

COMMON SYSTEM OWNERSHIP: The rating factors in the common ownership by the City of Bryan, TX (Bryan, or the city) of the city electric system (city system) and the rural electric system (rural system). The rural system is rated 'A+' with a Stable Outlook by Fitch. Although the two systems are separately financed they share the same senior management and all administrative functions.

POWER SUPPLY: The system obtains its power supply through a combination of owned gas-fired resources, purchased power contracts and Bryan's 21.7% ownership of the Gibbons Creek (Gibbons Creek) coal plant. The Gibbons Creek ownership is through the city's participation in the Texas Municipal Power Agency (TMPA; rated 'A+' with a Stable Outlook).

WEAKER FINANCIAL METRICS: The rating also reflects relatively weaker financial metrics largely driven by the anticipated migration of debt service obligations from TMPA to Bryan and the other participants as a result of the 2009 settlement agreement, as well as the city's rapidly amortizing debt profile.

RATE FLEXIBILITY: Favorably, the city system's rates are among the lowest in the state and the surrounding area. A fuel cost adjustment charge allows the city system to recoup costs in a timely manner.

SINGLE UNIT RISK: Credit concerns include single-unit risk with respect to Gibbons Creek which accounts for nearly 60% of the city system's power supply. However, the continued successful operation of the plant since commissioning in 1983 acts as a mitigant.

RAPID DEBT AMORTIZATION: The city system has a rapidly amortizing debt profile through 2018, by when all the debt issued by Bryan for the Gibbons Creek scrubber project will be fully paid. Financial metrics will likely remain lower than historical levels over the near term as a result, but Fitch views the resulting deleveraging favorably.

WHAT COULD TRIGGER A RATING ACTION

FINANCIAL METRICS: Maintenance of financial metrics and attainment of financial projections, which indicate an improving trend, is important. Fitch will monitor the actual financial performance compared with projections.

CREDIT PROFILE:

The city of Bryan, TX is located in east central Texas, approximately 90 miles west of Houston and is considered a twin city of College Station, TX. The city owns and operates the city Electric System within the boundaries of the city and the Rural Electric System outside the boundaries of the city. The city system serves 32,583 customers. The combined systems are also referred to as Bryan Texas Utilities (BTU). The city system has operated since 1909 and provides electric service within the boundaries of the city of Bryan located in Brazos County. The rural system's service territory includes area outside of the city of Bryan adjacent to the city of College Station, and parts of Burleson and Robertson counties in a radius of about 20 miles from the Bryan.

Each system, while operated by a common staff, is maintained separately for accounting and reporting purposes. BTU's rural system is an all-requirements customer of the city system. BTU's power supply mix consists of a combination of owned gas-fired resources, purchased power contracts and its ownership share in Gibbons Creek through TMPA.

Although currently adequate, financial performance has steadily declined over the recent past. Debt service coverage has decreased from more than 8 times (x) in 2007 to 1.52x in 2011, but is forecasted to improve to around 2.0x thru fiscal year 2016 primarily due to a combination of a rate adjustment in 2012 and a declining debt service burden. Days cash on hand is currently at 88 days which is in line with BTU's goal of 90 days but less than the 158 days in 2007. It is forecasted to stay at around 90 days through 2016.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', June 20, 2011;

--'U.S. Public Power Rating Criteria, Jan 11, 2012;

--'US Public Power Peer Study', June 20, 2011.

--'U.S. Public Power Distribution Systems', Nov. 17, 2011.

Applicable Criteria and Related Research:

U.S. Public Power Distribution Systems

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656525

U.S. Public Power Peer Study - June 2011

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=636311

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=665815

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

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