NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to the bank note corresponding to the following Austin, TX commercial paper notes:
--$400,000,000 combined utility systems commercial paper notes, series A.
The Rating Outlook is Stable.
The bank note rating is assigned to the combined utility systems commercial paper notes, series A, but will only become applicable if the commercial paper notes cannot be remarketed and are purchased by the bank providing the liquidity facility.
The bank note rating is being assigned in connection with the substitution of a current irrevocable direct-pay letter of credit (LOC) severally provided by JPMorgan Chase Bank, N.A. (rated 'A+/F1', Stable Outlook) and State Street Bank & Trust Company (rated 'AA-/F1+', Stable Outlook) which currently supports the CP notes, with a substitute LOC to be provided by The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU, rated 'A/F1', Stable Outlook).
SECURITY
The combined utility systems bank note is ultimately secured by a joint and several pledge of net revenues of the combined utility systems, consisting of the Austin Water Utility (AWU) and Austin Energy (AE). The bank note is payable after provision for prior first and subordinate lien obligations of the combined utility systems (rated 'AA' and 'AA-', both with a Stable Outlook) and after provision for the separately issued AWU water and wastewater revenue bonds (rated 'AA-'/Negative Outlook) and AE electric revenue bonds (rated 'AA-'/Stable Outlook).
The issuance of additional bonds secured by a joint and several pledge of net revenues of AWU and AE is no longer permitted by the master bond ordinance, making both the prior first and prior subordinate liens effectively closed. However, issuance of commercial paper obligations secured by the joint and several pledge is permitted.
KEY RATING DRIVERS
JOINT AND SEVERAL OBLIGATION: The bank note rating is driven by the credit quality of AWU and AE, and the pledge of net revenues of the two utilities. Given the joint and several nature of the revenue pledge, the assigned rating and Outlook reflect the credit quality of the stronger obligor.
STRONG SERVICE AREA: Both AWU and AE provide utility services on a retail basis to a sizeable service territory that includes the city (general obligation bonds rated 'AAA', Stable Outlook) and neighboring areas beyond the city limits. The rapidly growing service area continues to exhibit a deep and diverse economy, exceptionally low unemployment, above average wealth levels, and a highly diversified customer base.
SOLID INTEGRATED LECTRIC UTILITY: AE's rating broadly reflects its stable financial metrics, autonomous rate setting authority and competitive rates, currently moderate debt profile and the utility's diverse power supply portfolio.
DIMINISHING FLEXIBILITY AT AWU : AWU's low cash levels, high rates, narrow operating margins after making transfers to the city's general fund, and susceptibility to sizeable declines in consumption limit the system's overall flexibility. The recent revision in Outlook to Negative from Stable on the water and wastewater bonds reflects the diminishing prospect of any material improvement in AWU's financial profile over the near term, due in part to ongoing drought conditions.
RATING SENSITIVITIES
CHANGE IN OBLIGOR RATINGS: Any change in the rating or Outlook of the obligor exhibiting the stronger credit quality, would likely result in a corresponding rating action on the bank note.
INSUFFICIENT RATE SUPPORT: Reluctance on the part of AE and its governing bodies to promote and approve rate increases necessary to support the utility's financial profile and capital needs would result in downward pressure on the rating or Outlook.
For more information on AWU's long-term rating, see Fitch's press release 'Fitch Rates Austin's (TX) $271MM Water and Wastewater Rev Rfdg Bonds 'AA-'; Outlook Revised', dated May, 2014, available at 'www.fitchratings.com'.
For more information on AE's long-term rating, see Fitch's press release 'Fitch Rates Austin, TX's $404MM Electric Sys Rev Ref Bonds 'AA-'; Outlook Stable,' dated Nov. 8, 2012, available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. Public Power Peer Study -- June 2014' (June 13, 2014);
--'U.S. Public Power Peer Study Addendum - June 2014' (June 13, 2014);
--'U.S. Public Power Rating Criteria' (March 18, 2014);
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (July 2013);
--'2014 Water and Sewer Medians' (December 2013);
--'2014 Outlook: Water and Sewer Sector' (December 2013).
Applicable Criteria and Related Research:
U.S. Public Power Peer Study -- June 2014
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749789
U.S. Public Power Peer Study Addendum - June 2014
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750283
U.S. Public Power Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=740841
U.S. Water and Sewer Revenue Bond Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715275
2014 Water and Sewer Medians
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724358
2014 Outlook: Water and Sewer Sector
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724357
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=886174
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