Fitch Affirms Georgia Transmission Corp's PCBs at 'AA-' and CP at 'F1+'

NEW YORK--()--Fitch Ratings has affirmed the following Georgia Transmission Corporation (GTC, or the corporation) ratings:

--$94.5 million Development Authority of Burke County pollution control revenue bonds (Georgia Transmission Corporation Vogtle Project), series 2012, at 'AA-';

--$275 million commercial paper (CP) program at 'F1+'.

The Rating Outlook is Stable.

SECURITY

The pollution control revenue bonds (PCBs) are secured by a first lien on substantially all of GTC's assets, including its physical facilities and transmission service agreements (TSAs).

The CP notes are general unsecured obligations of GTC.

KEY RATING DRIVERS

ESSENTIAL SERVICE PROVIDER: GTC's more than $2 billion of total assets and participation in the state's Integrated Transmission System make its transmission network an essential part of the Georgia electric power infrastructure.

LONG-TERM CONTRACTS: Take-or-pay, joint and several TSAs with its member cooperatives extend through December 2060, providing GTC with a reliable revenue stream for the long term.

SOUND MEMBER BASE: Largely residential customers covering much of the state account for two-thirds of member systems' annual sales, which ultimately enhances GTC's revenue stability. Member cash flow metrics too have been steady. However, sizable consolidated debt obligations, including their memberships in Oglethorpe Power Corporation (OPC) and GTC, temper overall member credit quality to some extent.

PREDICTABLE COSTS: Predictable, fixed cost expenses benefit the corporation's annual planning. Revenues are not dependent upon usage.

RATE FLEXIBILITY: GTC's ability to set network service rates for full cost recovery, without regulatory oversight, supports its operating position.

MODEST CASH FLOW RATIOS: Slim debt service coverage levels expected of a low-risk transmission entity are offset by GTC's favorable revenue profile and its various sources of liquidity. Certain debt extensions under a Rural Utilities Service (RUS) loan program should benefit coverage levels beginning in 2014.

AMPLE LIQUIDITY: The corporation's 'AA-' long-term rating and ample liquidity sources - including a $275 million revolving credit agreement led by National Rural Utilities Cooperative Finance Corporation (CFC) that matches the maximum size of GTC's CP program - support its 'F1+' short-term rating.

RATING SENSITIVITIES

LOW-RISK OPERATING PROFILE: Its low-risk operating profile; long-term contracts; and broad, residential service territory should provide GTC with long-term rating stability.

STABILITY BENEFITS SHORT-TERM RATING: The strength and stability of its long-term credit rating, coupled with its various liquidity sources, should continue to support GTC's short-term rating for the foreseeable future.

CREDIT PROFILE

GTC is a not-for-profit corporation providing transmission services to 38 of 41 distribution cooperatives - organized as electric membership corporations - in the state of Georgia and to OPC. The corporation's members provide electric distribution services to a combined 1.8 million customers, or approximately 4.1 million people, across more than 70% of the state.

GTC elevated Jerry Donovan, its senior vice president & COO since 2009, to president & CEO in November 2013 when Mike Smith took the helm of OPC. Mr. Donovan is a long-tenured GTC employee, having worked at the corporation since its inception in 1997 and at OPC since 1979. Fitch does not expect any change in strategy at GTC.

STABLE FINANCIAL OPERATIONS

GTC's financial metrics continue their trend of stability, and Fitch gains comfort from the predictability of the corporation's cash flows. Slimmer debt service coverage ratios have averaged just 1.2x over the past three years. However, tighter margins are expected of a low-risk transmission provider. Moreover, forecast margins grow each year to upwards of $20 million in 2023 from approximately $15 million today.

An RUS program authorizing certain debt extensions allows GTC to better match the useful life of its assets and bolster debt service coverage ratios. Beginning in June 2014, GTC plans to extend $156 million of debt under the program. The principal reductions are expected to free up cash flow for capital projects and improve debt service coverage to a forecast average of 1.34x from 1.23x.

GROWING, PERFORMING ASSETS

GTC's reliability metrics continue to improve as its assets grow. In addition, the corporation has not had any violations of the Federal Energy Regulatory Commission's mandatory reliability standards since their inception in 2007.

Total assets increased to $2.1 billion in 2013 from $763 million in 1997 as member systems developed. Planned capital spending is consistent with prior years at about $100 million-$125 million annually through 2023. In addition, GTC's forecast ratio of equity to capitalization trends steadily upwards, to nearly 20% by 2023 from 11.6% in 2013.

FAVORABLE CUSTOMER PROFILE

The corporation's customer composition further enhances revenue stability. The service area is broad, serving 152 of 159 Georgia counties, and residential sales compose an above-average two-thirds of the total. In addition, only three members each provide more than 10% of GTC's revenues, thereby limiting customer concentration.

The consolidated financial profile of GTC's members has improved in recent years. Total operating revenues have grown to nearly $4 billion from slightly over $2 billion in 2003. The members' aggregate times interest earned ratio has remained near 2x with little deviation during the same period. The aggregate ratio of equity to capitalization has approached 50%, after three consecutive years of gains. However, consolidated debt obligations, including their memberships in OPC and GTC, would suggest considerably higher leverage.

CP LIQUIDITY SUPPORT

The CFC-led $275 million revolving credit agreement, together with GTC's unrestricted cash and an additional $250 million CoBank-led revolver, provide more than Fitch's expected coverage metric of 1.25x the maximum size of the corporation's CP program. Actual coverage registered 1.44x, 1.38x, 1.50x, and 1.64x in each successive quarter of 2013.

The CFC- and CoBank-led revolvers are for general corporate purposes. However, in practice GTC limits total draws by the amount of outstanding CP notes, as outlined in the 'Financial Condition' section of its audit. GTC's goal is to maintain adequate financial support for the program at all times.

GTC recently extended the CFC-led revolver by two years to November 2018. The corporation amended the timing provisions of the CoBank-led revolver in March 2013 to ensure its full availability. In addition, GTC expanded the size of the revolver to $250 million from $150 million in December 2013 and likewise extended the term to 2018.

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

This rating action was informed by the sources of information identified in Fitch's U.S. Public Power Rating Criteria.

Applicable Criteria and Related Research:

--'U.S. Public Power Rating Criteria' (March 18, 2014);

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

--'2014 Outlook: U.S. Public Power and Electric Cooperative Sector' (Dec. 12, 2013);

--'Rating U.S. Public Finance Short-Term Debt' (Dec. 9, 2013);

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

--'Georgia Transmission Corporation' (April 10, 2012).

Applicable Criteria and Related Research:

Georgia Transmission Corp. (Revenue Bonds)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=675389

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

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

Rating U.S. Public Finance Short-Term Debt

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724680

2014 Outlook: U.S. Public Power and Electric Cooperative Sector (Calm Under Pressure)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725447

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 Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=740841

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825520

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Contacts

Fitch Ratings
Primary Analyst
Ryan A. Greene, +1-212-908-0593
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Alan Spen, +1-212-908-0594
Senior Director
or
Committee Chairperson
Dennis Pidherny, +1-212-908-0738
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Ryan A. Greene, +1-212-908-0593
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Alan Spen, +1-212-908-0594
Senior Director
or
Committee Chairperson
Dennis Pidherny, +1-212-908-0738
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com