Fitch Rates Brownsville PUB's -Texas- $76.3MM Sub Revs 'A-'.Business Editors NEW YORK--(BUSINESS WIRE)--Nov. 25, 2002 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. assigns an 'A-' rating to Brownsville (TX) Public Utilities Board's (BPUB) $76.3 million utilities system subordinate lien revenue and refunding bonds. Fitch also affirms the 'A' rating on BPUB's outstanding $135 million of senior lien senior lien n. the first security interest (lien or claim) placed upon property at a time before other liens, which are called "junior" liens. (See: mortgage, deed of trust, lien, UCC-1) revenue bonds. Proceeds from the bonds will be used to refund a portion of the outstanding 1992 series bonds, to acquire electric generation, and make capital improvements to the combined electric, water and wastewater system. BPUB expects to price the bonds by early next year. The combined utility system's ratings are supported by its low cost power resources, strong financial performance and a robust service territory economy. BPUB benefits from having all-in costs averaging 6.17 cents per kwh in 2001 compared to the regional average of 7.91 cents/kwh. Financial performance has been strong with debt service coverage for 2001 of 1.85 times (x) and equity to total capitalization Total capitalization The total long-term debt and all types of equity of a company that constitutes its capital structure. total capitalization See capitalization. at a healthy 42.6%. Fitch rates the general obligation bonds of the City of Brownsville (the city) 'A+'. The board has a high degree of autonomy and transfers to the city's general fund were a reasonable 5.4% of total revenues in 2001. Credit concerns center on the electric system's exposure to natural gas price volatility, with 37.4% of its 2001 energy requirements met with gas-fired generating resources. With electric deregulation Deregulation The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. Notes: Traditional areas that have been deregulated are the telephone and airline industries. in Texas taking effect in 2001, an increasingly competitive environment adds another element of risk to BPUB's credit profile. While the service territory has featured consistent population growth and economic expansion for several years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time city's low wealth indicators, high unemployment rate, and sensitivity to the Mexican economy represent additional credit concerns. A portion of the bond proceeds will be used to add a 45 megawatt (mw) simple cycle turbine to its Silas Ray facility. The turbine is expected to come online by mid to late 2004 and should bolster the utility's physical hedge against peak power prices. In addition, BPUB will participate in the Southmost Regional Water Authority water supply and desalination desalination or desalting Removal of dissolved salts from seawater and from the salty waters of inland seas, highly mineralized groundwaters, and municipal wastewaters. facility project, recently rated 'A' by Fitch (see Southmost Regional Water Authority, New Issue Report, dated Nov. 18, 2002 and available on the Fitch Ratings web site at 'www.fitchratings.com'). BPUB's financial position is expected to remain strong, with all-in debt service coverage to exceed 2.0 times (x) through 2004, and then weaken slightly to approximately 1.8x in both 2005 and 2006. These projections take into account the water supply contract payments related to the Southmost project. Fitch ran several stress cases on management's financial projections, and believes that BPUB's operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. provide a good amount of downside protection Downside Protection Generally used in connection with covered call writing, this is the cushion against loss, in case of a price decline by the underlying security, that is afforded by the written call option. . The current transaction is part of BPUB's debt strategy of recent years, which has centered on preparing the utility for the advent of electric competition. Elements of the strategy include replacing generation-related debt with variable-rate debt, an accelerated retirement of some generation-related debt, and a future restructuring of the bond resolution to provide financial flexibility. While the new issuance brings BPUB's variable-rate debt to a relatively high 34% of total capitalization, this debt is entirely hedged with interest rate swaps Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. . Brownsville Public Utilities Board The Brownsville Public Utilities Board, or Brownsville PUB, is the main utility company in the city of Brownsville, Texas. It is the largest of three electric providers (in terms of local customers) in the city of Brownsville, as well as the largest water provider for the is a combined utility system, located in Texas' Rio Grande Valley, providing electric, water, and wastewater services to the city of Brownsville. Operating revenues for fiscal year 2001 totaled $110 million, comprised of 75% electric, 13% water and 12% waste water. |
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