Fitch Affirms Greenville (NC) Combined Enterprise Sys Rev Bonds at 'A+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'A+' rating on the city of Greenville (NC) Greenville Utilities Commission's (GUC) $46.1 million of outstanding combined enterprise system revenue bonds, series 2001, 2008A and 2008B.

The Rating Outlook is Stable.

SECURITY

The bonds are special obligations of the city of Greenville and are secured solely by a pledge of all net receipts of the combined enterprise system, which is composed of the electric system, water system, sanitary sewer system and natural gas system owned by the city and operated by GUC.

KEY RATING DRIVERS

DIVERSIFIED UTILITY SERVICE PROVIDER: GUC provides a diverse host of services including electric and gas distribution, as well as water and wastewater services. The electric system receives wholesale power from its participation in the North Carolina Eastern Municipal Power Agency (NCEMPA; rated 'A-' by Fitch).

STRONG AND GROWING SERVICE AREA: GUC's service area continues to experience population growth that is well above the state and national averages and has been driven by regional economic expansion initiatives, primarily in the education and medical services sectors. Usage and customer growth rates at GUC have also exceeded industry averages.

EFFICIENT ELECTRIC OPERATIONS: The electric distribution system is operated very efficiently, as evidenced by reasonably competitive retail rates, despite higher than average wholesale power charges from NCEMPA. The keen focus of management on operating metrics is viewed favorably by Fitch.

RATE INCREASES ANTICIPATED: Planned rate increases, predominately for water and wastewater services, are expected to offset GUC's forecasted capital plan. Competitive rates for service as compared to other regional providers should allow some rate flexibility for the planned increases.

AGGRESSIVE AMORTIZATION OF PRINCIPAL: Debt service requirements peak in fiscal 2017 before declining rapidly, along with outstanding principal. Similarly, fixed charges related to GUC's portion of NCEMPA's outstanding debt reflect full repayment of the agency's debt by 2026, well before the expected life of the related power assets. Fitch acknowledges the benefits of the commission's aggressive deleveraging, despite resulting higher debt service costs and weaker coverage.

RATING SENSITIVITIES

MORE FAVORABLE POWER SUPPLY ARRANGEMENT: NCEMPA has entered into exclusive discussions with Duke Energy Progress regarding the potential sale of NCEMPA's ownership interest in five Duke Energy Progress-operated plants. A successful sale that provides GUC with significant savings on its share of NCEMPA's outstanding debt and future power costs would be viewed favorably and would likely precipitate a review for upgrade.

SUCCESSFUL DELEVERAGING: Absent the potential asset sale, continued debt reduction over time, particularly as forecast, could have a positive impact on the rating and/or Outlook.

CREDIT PROFILE

GUC operates a combined utility system that provides electric, water, wastewater and natural gas services throughout a region that encompasses the City of Greenville, NC (the city) and portions of the broader Pitt County (NC). Net revenues of the combined system are pledged as payment to the bonds. The city has experienced well above-average population growth in recent years and has emerged as a commercial, educational and medical hub for eastern North Carolina. GUC provided services to 149,973 total connections in fiscal year (FY) 2013, inclusive of all its services.

OPERATIONS AND ASSETS

Electric operations account for the largest portion of revenue, constituting 75% of revenues in FY2013. Wholesale power supply is arranged through GUC's participation in NCEMPA and is supplied pursuant to two long-term contracts. Water and wastewater services combined account for an additional 12.8% of revenue and natural gas services accounted for the remaining 12.2% of revenue in fiscal year 2013.

NCEMPA entered into negotiations with Duke for the potential sale of its generation assets earlier this month. A successful sale of the assets could potentially be beneficial to GUC if the sale price and contract terms allow for a reduction in power supply costs and related procurement risks. Fitch will evaluate the effect of the proposed sale on GUC once a definitive agreement is reached and the details of which are available. Failure to reach an agreement on the proposed sale would be credit neutral for GUC.

FINANCIAL PERFORMANCE

GUC's financial position has remained relatively stable and outperformed recent forecasts. Fitch-calculated debt service coverage (DSC) remained relatively unchanged at approximately 2.3x in fiscal year 2009 through 2012 and increased to 2.44x in fiscal year 2013 due to an implemented base rate increase. Projections show a slight weakening of DSC, due to increased debt service from GUC's aggressive amortization schedule, but should remain acceptable for the rating category.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. Public Power Peer Study Addendum - February 2014' (Feb. 7, 2014);

--'U.S. Public Power Peer Study -- June 2013' (June 13, 2013);

--'U.S. Public Power Rating Criteria' (Dec. 18, 2012).

Applicable Criteria and Related Research:

U.S. Public Power Peer Study Addendum -- February 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735601

U.S. Public Power Peer Study -- June 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710397

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696027

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=821955

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Contacts

Fitch Ratings
Primary Analyst
Stacey Mawson
Associate Director
+1-212-908-0678
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Lina Santoro
+1-212-908-0522
or
Committee Chairperson
Dennis Pidherny
Managing Director
+1-212-908-0738
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Stacey Mawson
Associate Director
+1-212-908-0678
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Lina Santoro
+1-212-908-0522
or
Committee Chairperson
Dennis Pidherny
Managing Director
+1-212-908-0738
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com