Fitch Rates Kissimmee Utility Authority's $60MM Revs & $60MM Subordinate Bonds 'A'.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 24, 2003

Fitch Ratings has assigned an 'A' rating to Kissimmee Utility Authority's (KUA) $60 million issue of electric system refunding and improvement revenue bonds, series 2003, and to its $60 million issue of electric system refunding revenue bonds, subordinate series 2003. Bond proceeds will be used to refund KUA's series 1993 bonds and to make improvements to the system. The subordinate bonds will be issued as short-term auction-rate securities (M-STARs). KUA will simultaneously enter into a floating-to-fixed interest rate swap with JPMorgan Chase Bank, who also will serve as lead manager for the transaction. The bonds are expected to price the week of July 28. Fitch also affirms the ratings on KUA's $203 million in outstanding revenue bonds. The Rating Outlook is Stable.

The 'A' rating considers KUA's sound financial performance, favorable customer base (mostly residential and commercial), and the lack of competition in Florida. Fitch sees no material difference in KUA's ability to service its senior and subordinate liens due to the utility's minimal future capital needs, similar security provisions outlined in the respective bond covenants, and a limited use of the subordinate lien for variable-rate debt issues.

In October 2002, KUA became a member of the Florida Municipal Power Agency's (FMPA) All-Requirements Project (ARP), pooling its generation resources with those of the project. Fitch rates the ARP 'A+'. According to the arrangement, KUA assigned all the output from its owned generation as well as contractual entitlements to FMPA, and agreed to purchase all its energy requirements in excess of its excluded nuclear resources (about 12 megawatts) from FMPA. Since FMPA will manage all KUA's generation needs going forward, future capital expenditures will be limited to the distribution and transmission system. New money proceeds (approximately $30 million) from the senior bond issue will be used to upgrade the distribution system and add two substations to meet growth demands in KUA's service territory.

Primary credit concerns center on KUA's higher than average retail rates and power supply risks associated with the ARP project, which include exposure to natural gas price volatility. In addition, growth in KUA's service territory economy is primarily driven by tourism and could be sensitive to prolonged economic downturns.

Financial results for 2002 were solid, with debt service coverage of 1.6 times (x) and ample cash balances. As of Sept. 30, 2002, KUA had $21.5 million in its rate stabilization account, up from $18.9 million at the end of the 2001 fiscal year. While KUA's $70 million in outstanding commercial paper exposes the utility to escalations in interest rates, the risk is largely offset by cash balances currently held in short-term instruments. Fitch views favorably management's continued policy to budget for annual all-in debt service coverage of 1.5x

KUA provides electric services to 49,359 customers. Approximately 48% of customers are located within city limits, while 52% are located outside. The service territory is located approximately 18 miles south of Orlando and 7 miles east of Disney World. In October 2002, KUA joined the Florida Municipal Power Agency's All-Requirements Project, to which it transferred its owned generation assets, excluding its shares in nuclear resources. Peak load for 2002 was 262 MW. The utility also provides dial-up and commercial internet services to 3,124 customers.