AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'F1+' rating on Guadalupe Valley Electric Cooperative, Texas' (GVEC) $75 million commercial paper (CP) notes program.
SECURITY
GVEC's taxable CP notes are secured by all equity of the cooperative, equal to all secured long-term obligations issued under the Master Indenture.
KEY RATING DRIVERS
GROWING DISTRIBUTION SYSTEM: GVEC is a transmission and distribution cooperative located in central Texas with a service area experiencing very strong growth in energy sales given the recent development of the Eagle Ford shale.
LONG-TERM RATING AND MARKET ACCESS: GVEC's short-term rating maps to GVEC's 'AA-' long-term credit rating (electric system revenue bonds), which reflects the utility's overall strong credit quality and strong market access.
SUBSTANTIAL SHORT-TERM LIQUIDITY: Total internal liquidity resources, including $30 million in cash and a $75 million dedicated credit agreement, provide sufficient coverage of maximum potential requirements, well in excess of Fitch's 125% threshold.
SOUND CORE OPERATIONS: GVEC's core electric operations provide very strong financial performance that has occurred throughout the recent period of very high load growth and transition away from the all-requirements contract with the Lower Colorado River Authority to medium-term contracts with various power supply providers.
RATING SENSITIVITIES
LONG-TERM RATING AND LIQUIDITY: Maintenance of an 'AA'-category long-term rating, as well as robust cash and cash equivalents and access to sufficient liquidity facilities, should continue to support the 'F1+' rating on Guadalupe Valley Electric Cooperative's commercial paper notes program.
CREDIT PROFILE
GVEC is a retail transmission and distribution cooperative that provides electric service to around 77,000 customers across 13 counties in Central Texas. GVEC's service territory is located directly east of San Antonio. GVEC's service area encompasses the heart of the Eagle Ford shale geological formation that has experienced intense oil and gas exploration and development in the past five years.
Load growth has been substantial at 8% and 7% per year in fiscals 2014 and 2013, respectively. Growth is occurring in all customer classes but was exceptionally high in large commercial and industrial demand in fiscal 2014. GVEC anticipates that growth in the next few years will continue to be strong, despite some slow-down in new drilling.
GOOD LIQUIDITY AND LONG-TERM RATING
GVEC's sufficient internal liquidity and 'AA-' long-term rating support the 'F1+' short-term ratings on the cooperative's commercial paper note program. Liquidity sources include $30.8 million of GVEC's own cash and investments (March 31, 2016), as well as a dedicated revolving credit facility available to support its CP program.
A $75 million, credit agreement with CoBank, ACB (rated 'AA-/F1+') expires in February 2017 but is structured as a continual agreement unless notice is provided 60 days prior to the each annual extension date. The agreement is dedicated to refinance commercial paper notes. Draws on the facility may be converted, at GVEC's option, into a five-year term loan. Events of default under the credit facilities include coverage requirements, minimum equity thresholds, nonpayment and insolvency.
GVEC has two additional revolving lines of credit with CoBank ACB and the Natural Rural Utilities Cooperative Finance Corporation (rated 'A/F1'), respectively, totaling $70 million. The lines may be used for any corporate purpose and provide additional liquidity.
LONG-TERM RATING
For additional information on GVEC's 'AA-' long-term rating, see Fitch's press release dated June 18, 2015 and available at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Rating U.S. Public Finance Short-Term Debt
(pub. 17 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873508
Revenue-Supported
Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S.
Public Power Rating Criteria (pub. 18 May 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864007
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004278
Solicitation
Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004278
Endorsement
Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.