Fitch Rates New Braunfels --Texas-- $10.2MM Utility System Revs 'AA-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 21, 2004

Fitch Ratings--Fitch Ratings has assigned an 'AA-' rating to New Braunfels Utilities, Texas' (NBU) $10.2 million of senior lien utility system improvement and refunding revenue bonds, series 2004. NBU's $27 million of outstanding senior debt is affirmed at 'AA-' by Fitch. The Rating Outlook is Stable. Proceeds from the debt issuance will provide funds to finance water, sewer, and electric projects and refund certain outstanding utility system revenue bonds, series 1996. The bonds are secured by a net revenue pledge of the combined utility systems and are expected to price Jan. 22 with First Southwest as lead underwriter.

The rating is supported by NBU's low-cost power, very competitive retail rates, an excellent financial record, and growing customer base. The utility benefits from a favorable take-and-pay contract with the Lower Colorado River Authority (rated 'AA-' by Fitch) which provides 90% of NBU's energy requirements at a low cost. NBU's very competitive retail rates averaged 5.63 cents per kilowatt-hour (kwh) in 2003, comparing well with a regional average of 7.0 cents per kwh. Financial results for fiscal 2003 were extremely strong, with debt service coverage of 3.97 times (x), equity to capitalization of 78.8%, and 192 days cash on hand. Adjusting for NBU's off-balance sheet debt obligations related to the LCRA contract, debt service coverage is a healthy 1.9x for 2003. In addition, NBU's general fund transfer policy, which historically has averaged 5-6% of gross revenues, does not allow the transfer amount to exceed net income. This policy is viewed favorably by Fitch.

Management expects to issue approximately $30 million in debt from 2004 through 2007, including the current $10 million issue. The majority of proceeds will be used for improvement and expansion of the water and sewer systems, with future electric system capital improvements to be financed primarily from cash flows. Water and wastewater rate increases are needed and will be phased in through 2007 to meet the costs of the increased debt burden and make the systems financially self-sufficient. Water and wastewater revenues accounted for 16.3% of gross revenues for 2003 and 48% of NBU's net revenues (gross revenues less purchased power expense).

Primary credit concerns center on retail energy competition in Texas and customer concentration (NBU's top 10 electric customers account for about 47% of total kilowatt hour sales). These risks are mitigated by NBU's low rates and its ability under the LCRA contract to take less power if it should lose customers. Although the City of New Braunfels enjoys steady economic growth and growing industrial diversification due to its proximity to Austin and San Antonio, the local economy may be somewhat vulnerable to prolonged economic downturns.

New Braunfels Utilities (NBU) is a combined utility, serving approximately 23,268 retail electric customers, 16,446 water customers, and 14,463 wastewater customers. Total operating revenues for 2003 of $68.6 million, consisting of 80.9% from electric services, 8.5% from water services, and 7.8% from wastewater services.