NEW YORK--()--Fitch Ratings has affirmed the 'A-' rating on the following Great River Energy (GRE) outstanding bonds:
--$2.49 billion First Mortgage Bonds.
The Rating Outlook is Stable.
The bonds are secured by a first lien on substantially all of GRE's tangible assets and certain intangible assets, including its G&T facilities and its wholesale power and transmission service contracts with its members.
KEY RATING DRIVERS
SOLID ECONOMY: GRE is the second largest wholesale power supplier in Minnesota, with its member systems serving a diverse and, primarily residential customer base, including suburbs of the Twin Cities. Total population served approximates 1.7 million people.
BALANCED RESOURCE MIX: Power supply resources consist of 12 generating plants, an extensive transmission network and a diverse mix of base load and peaking units. Coal generation is substantial, accounting for about 78% of power supply, but fuel and resource diversity is thought to be reasonable, given its geographic location.
CAPITAL PROJECTS SIZEABLE: Over $1 billion of capital projects have been identified for the period 2012 to 2016. While significant, this is below previous capital outlay programs. None relate to new generation, with transmission projects and environmental modifications being the most significant.
FINANCIAL RESULTS STEADY: GRE's board previously targeted debt service coverage (DSC) around 1.20 times (x), which was achieved on a consistent basis. Near term projections assume slightly lower coverage ratios, resulting in a modest reduction in financial protection, but still sufficient to allow equity/capitalization to grow from 13% in 2012 to 20% by 2020.
RELIANT ON CAPITAL MARKET ACCESS: Funding of capital projects relies on the use of a $600 million revolving credit facility as bridge financing, with periodic, longer-term market transactions providing permanent financing. While a cost-effective funding strategy, this approach does expose GRE to greater market risk.
GRE is a Minnesota generation and transmission (G&T) cooperative that provides wholesale electric energy to 28 member distribution cooperatives, which in turn serve more than 650,000 member consumers. GRE is the second largest wholesale power provider in Minnesota, supplying electricity to its members located from the outer-ring suburbs of the Twin Cities, up to the Arrowhead region of Minnesota and down to the farming communities in the southwest part of the state. Sales growth has recently moderated to below one percent a year.
POWER SUPPLY AMPLE
GRE owns and maintains a resource mix that includes 12 power plants and an extensive transmission network. The cooperative has more than 3,400 megawatts (MW) of generation capacity, consisting of a diverse mix of base load (primarily coal) and peaking power plants; including refuse-derived fuel, natural gas, fuel oil and wind generation. GRE has decided to delay the startup of the new 99 MW Spiritwood coal plant for a few years with demand for energy slowing. Wholesale rates are competitive, but are expected to rise incrementally to cover higher fuel costs and new capital projects.
DSC has approximated 1.20x in recent years and is forecasted to maintain that threshold over the longer term. However, due to rising costs and the need for rate increases, management is expected to modestly lower its coverage horizon to around 1.17x over the near term; which Fitch feels is still adequate for the current rating level.
Capital expenditures remain sizeable, reflecting participation in several major transmission projects (CapX2020) and environmental upgrades. Liquidity should be more than adequate for funding purposes between substantial cash on hand and a $600 million five-year credit facility. However, GRE's policy of financing construction expenditures with credit facility, borrowings, to be funded out periodically with 30-year debt, adds to GRE's risk profile.
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 and U.S. Public Power Rating Criteria, this action was informed by information from CreditScope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 12, 2012;
--'U.S. Public Power Rating Criteria', Jan. 11, 2012.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria