Fitch Affirms Kissimmee Utility Auth (FL) $225.74MM Revs at 'A'.

NEW YORK -- Fitch Ratings affirms Florida's Kissimmee Utility Authority's (KUA) $211 million of outstanding senior and subordinate electric system revenue bonds at 'A'. The Rating Outlook is Stable.

The bonds are secured by net revenues of KUA's electric system. This review was done in conjunction with the conversion of KUA's $60.7 million electric system revenue bonds, subordinate series 2003 to fixed rate mode from weekly variable interest mode on Sept. 1, 2009 according to the 2003 Supplemental Resolution.

The 'A' rating reflects the KUA's sound financial profile, experienced management team, and solid power supply obtained through Florida Municipal Power Agency's (FMPA) All Requirements Project (ARP; rated 'A+' with a Stable Outlook). The service territory is comprised of 84% residential and 16% commercial and industrial. While there is limited individual customer concentration with the 10 largest customers representing less than 15% of sales, the regional economy is concentrated in tourism.

KUA is the largest participant in FMPA's ARP. The ARP allows participants to pool their resources and utilize generation more efficiently, as well as mitigate some key risks associated with power supply management, such as fuel hedging, wholesale market risks, and single unit outage risk. Like most Florida electric systems, the ARP is exposed to natural gas price volatility, which has resulted in high costs to ARP members.

The utility's financial metrics are adequate for the rating category with debt service coverage between 1.86 to 1.56 times (x) and above average liquidity that declined to 135 days at the end of FY 08, but has since increased as the utility replenishes its rate stabilization fund. Favorably, all of KUA's debt will be fixed-rate as a result of the planned conversion from variable rate debt. Fitch considers the stability of fixed-rate debt payments to be a credit positive for the utility especially given the ARP's exposure to volatile natural gas prices.

KUA's debt levels are above average, evidenced by low equity and high debt-per-customer compared with other FMPA ARP. This reflects the utility's higher proportion of owned generation compared with some other ARP members.

Going forward, Fitch will monitor how the area economy affects KUA, especially given the region's concentration in the tourism industry and the pressure of the Florida economy. Additionally, FMPA ARP's decisions regarding future power supply and member contracts have the ability to affect costs for all ARP members, including KUA.

KUA provides electric services to approximately 63,800 customers. It is located in Central Florida about 18 miles south of Orlando, FL. and seven miles east of Walt Disney World. Approximately 45% of the system's customers are located within the City of Kissimmee, with the remainder located outside the city limits. Peak load for 2008 was 315 megawatts. Load growth is forecasted to be down 5% in 2009 and then return to historic growth levels of 2.5% in 2010 and following.

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