NEW YORK--(BUSINESS WIRE)--Stronger coverage for some U.S. Public Power issuers is likely being driven by modest improvements in revenue and margins as well as lower interest expense, according to Fitch Ratings. We expect these trends to continue for the remainder of 2014. Debt service coverage began to stabilize in 2013 for many issuers throughout the public power sector.
Stabilization is most pronounced for 'AA' and 'A' rated wholesale electric systems. Their coverage medians improved in 2013 following a period of decline that began in 2010. Coverage medians for retail electric systems have exhibited greater volatility in recent years but declined in 2013, which remains a concern and could lead to future downward ratings actions. Data on issuers with other ratings is too sparse to generalize.
We believe that the divergence in coverage between wholesale and retail systems may be partially attributable to these issuer's reluctance to pass higher wholesale costs on to retail ratepayers. Rate increases remain politically challenging in many regions, particularly those where the economic recovery has been slower than expected.
The results also show that liquidity ratios remain relatively stable and very robust for issuers rated in the 'A' and 'AA' categories. The strong liquidity metrics observed in recent years are likely driven in part by slower growth in construction and capital investment, as evidenced by a declining ratio of cap ex to depreciation. The downward trend in capital expenditures, which began in 2009, likely reflects slower sales growth and the deferral of certain capital projects. We will continue to monitor this and its potential impact on resource planning and maintenance life cycle costs.
A full copy of the "U.S. Public Power Peer Study," including more details and an Excel-based addendum, are available on our website www.fitchratings.com
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