Fitch Affirms Orlando Utilities Commission Series 2011A Bonds at 'F1+'
NEW YORK -- June 19, 2013
Fitch Ratings has affirmed the short-term rating on the Orlando Utilities
Commission (OUC) $98.36 million utility system revenue bonds series 2011A at
The long-term rating on the series 2011A bonds is 'AA', and the Outlook is
The bonds are secured by net revenues of the combined electric and water
KEY RATING DRIVERS
STRONG UNDERLYING FUNDAMENTALS: The electric and water utility's 'AA' rating
reflects solid financial metrics, competitive rates, a diverse fuel mix and
experienced management team.
SOLID FINANCIAL COVERAGE: Fitch calculated debt service coverage (DSC) has
historically hovered around 2.0 times (x). Coverage was lower in fiscal 2012
at 1.52x, but the weakening was largely attributable to an isolated scheduled
debt maturity, which was prefunded. Excluding the prefunded maturity, coverage
AMPLE LIQUIDITY: OUC maintains approximately $600 million of cash reserves or
353 days cash on hand, which supports the 'F1+' short-term rating on the
series 2011A bonds and provides ample coverage above Fitch's 1.25x threshold
for self-liquidity variable-rate demand bonds.
DIVERSIFIED GENERATING CAPACITY: OUC's generating mix of coal (41% of
capacity) and natural gas (54%) provides good operating flexibility, and
enables the utility to offer low-cost electric service to its customers.
SLOWER ECONOMIC GROWTH: The utility's service territory has been impacted by
the weak economy and slower demand for electricity. More conservative
expectations for growth have therefore been incorporated into OUC's planning
EXCESSIVE TRANSFER PAYMENTS: Unusually large transfers and other payments to
local governments, above current high levels, would be viewed negatively by
HISTORICAL COVERAGE LEVELS MAINTAINED: OUC'S current rating reflects Fitch's
expectation that DSC will be maintained at historical levels.
Electric and Water Systems
OUC employs a diverse mix of coal and natural gas generation, which the
utility believes is sufficient to meet customer demand until 2017. Generating
capacity totals about 1,850 MW and is made up by fuel type for 2012 as
follows: natural gas (54%), coal (41%), nuclear (4%) and renewable (1%). Duke
Energy Corporation's recent announcement that it would retire the Crystal
River 3 nuclear facility (OUC's share is 14 MW) should have only a nominal
operational and financial impact on OUC given the short tenor remaining on the
operating license (2016) and the limited capacity owned by OUC.
OUC has contracts with three coal suppliers to provide about 50% of needs
through 2013. The utility hedges against its budget for up to 75% of estimated
retail natural gas prices in the current fiscal year, and also maintains a
fuel stabilization fund to help mitigate short-term fuel price variability.
Additionally, the utility can pass increased costs to its customers based
solely on the decision of its governing board.
The water system's customer base is reasonably diverse. The water supply is
obtained from 32 deep wells from the Floridian Aquifer. With a consumptive use
permit (CUP) through May 2023, supply is expected to be sufficient through the
duration of the CUP.
Stable Debt Service Coverage
OUC has historically demonstrated strong and stable financial metrics.
Fitch-calculated DSC, excluding prefunded maturities, was in-line with
historical levels in fiscal 2012 at 2.01x.. Funds available for debt service
were only modestly lower reflecting mild weather and weaker electric sales.
OUC's cash position remained very strong at fiscal yearend 2012, which Fitch
views as a credit positive. Management forecasts assume DSC above 2.0x (1.6x
adjusted) and days cash on hand greater than 200 days over the next several
Transfers to the City Remain High
OUC makes both a revenue-based transfer and an income-based dividend payment
to the city of Orlando. Utility tax and transfer payments totaled $55.4
million in fiscal 2012, while dividends total $47.1 million. The size of the
transfer and other payments (as a percent of total revenue) remains high for
the rating category.
Service Territory Stable
Future growth of the electric system is forecasted at about 2% annually for
the next several years, with above average growth expected to come from areas
surrounding the Lake Nona Medical City, which is southeast of the Orlando
International Airport and from plans to add SunRail, a mass transportation
network closer to the city. Water customer and sales growth is expected to be
about 1.5% yearly for the next five years. Unemployment rates for Orange
County, FL, the state of Florida and the U.S., based on preliminary August
2012 figures, was 8.6%, 9.0% and 8.2%, respectively.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this
action was informed by information from CreditScope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 3, 2013);
--'U.S. Public Power Rating Criteria' (Dec. 18, 2012);
--'Criteria for Assigning Short-term Ratings Based on Internal Liquidity'
(June 13, 2013);
--'U.S. Public Power Peer Study' (June 13, 2013).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
U.S. Public Power Peer Study -- June 2013
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Dennis M. Pidherny
One State Street Plaza
New York, NY 10004
Elizabeth Fogerty, New York, +1 212-908-0526
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