NEW YORK - (Business Wire) Fitch Ratings has assigned an 'A+' rating to Lower Colorado River Authority's (LCRA) $159.5 million transmission contract refunding revenue bonds, series 2008 (issued on behalf of the LCRA Transmission Services Corporation). The bonds are expected to price on May 13, 2008. Proceeds of the series 2008 bonds will refinance a portion of LCRA Transmission Services Corporation's (TSCorp) outstanding commercial paper and finance a debt service reserve fund for the bonds. Fitch also affirmed the 'A+' rating on TSCorp's outstanding contract revenue bonds. The Rating Outlook is Stable.
The rating reflects TSCorp's consistent financial performance since its inception in 2002, with debt service coverage of 1.58 times (x) in fiscal year ended 2007. The rating also takes into account management's ability to achieve its projected financial results and capital spending targets, and a proven rate methodology developed with the Texas Public Utility Commission (PUC). The rating additionally reflects the essentiality of the service TSCorp provides and the limited business risk involved with regulated transmission assets. TSCorp's relationship with the PUC and the PUC's ongoing regulatory support for cost recovery are primary credit drivers of this rating. TSCorp must seek regulatory approval for any rate changes. Given the large scale of capital additions planned, timely cost recovery is extremely important.
TSCorp is a Lower Colorado River Authority transmission system affiliate and non-profit corporation. Fitch views TSCorp as being ultimately controlled and operated by LCRA (which is rated 'A+' by Fitch, with a Stable Outlook). The rating is affected by the rating of LCRA given the overlap in management and financial ties between the two entities. It is important to note that, while viewed as unlikely, LCRA has the ability to issue debt secured by TSCorp's contractual commitment to LCRA, which are senior to payments made to TSCorp bondholders.
TSCorp was formed to separate LCRA's transmission business from electric generation, as required under the Texas electricity restructuring legislation (Senate Bill 7), and allow LCRA to provide transmission services throughout Texas. TSCorp's business model focuses on developing transmission projects across Texas currently recommended by the Electric Reliability Council of Texas (ERCOT) that have or will receive a certificate of convenience and necessity (CCN) from the PUC prior to construction. TSCorp's revenue stream is provided by monthly payments from the distribution service providers within ERCOT, which covers approximately 85% of Texas. The rate received by TSCorp is established by the PUC and provides 1.5x coverage of any transmission related debt, both at LCRA and TSCorp.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 Ratings
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