Fitch Rates Winter Park, Florida $49.8MM Electric Revenue Bonds 'A'.

NEW YORK -- Fitch Ratings has assigned an initial rating of 'A' to the City of Winter Park, FL $49.8 million of electric revenue bonds, series 2005A (AMT) and series 2005B (non-AMT). Proceeds from the debt will provide funds to acquire the city's electric distribution franchise and to finance related system upgrades, including the construction of two electric substations. The city is purchasing the franchise from Progress Energy (Florida Power Corporation), terminating a franchise agreement between the two parties that originated in 1921. The bonds are to be issued at auction rate for 30 years, with 90% of the variable-rate exposure swapped to fixed-rate bonds. The bonds are expected to price the week of May 23 with JP Morgan as lead underwriter.

Fitch believes the underlying strength of the Winter Park bonds reflects credit metrics comparable to those of electric systems rated in the 'A' category. This review is based on an understanding of the terms of the purchase, the city's demographics, Progress Energy's power supply and related power supply agreement, and an assessment of the city's operational projections, as there is no outstanding history under city ownership.

The rating reflects the perceived stability of an already established distribution franchise with minimal construction risk (as opposed to a new start-up), that the city's decision to purchase the franchise appears reasonable, and that the city has executed a prudent outsourcing and internal hiring plan. Additional credit strengths include a favorable service territory and above-average wealth indicators. The rating also takes into account that there is limited counterparty risk under the city's five-year power sales arrangement with Progress Energy. Progress' power supply is relatively diversified, and Fitch is comfortable with Progress' own credit profile at this time. Although the city bears some commodity risk under the arrangement, Fitch found, under various stress scenarios, that the fuel exposure should not materially impact the city's margins and given the city commission's ability to adjust fuel charges under short notice, if needed. The rating also recognizes that the city has chosen ENCO, a former Edison affiliate that operates municipal electric distribution systems in California and Arizona, to operate the Winter Park system.

The city's financial projections appear solid. There is some financial cushion built into the forecasted margins, lending additional security in the event that there is unexpected variability in operating or fuel costs. In the city's financial projections, the city estimates debt service coverage to level out at about 2.5 times (x), from a high of about 6.2x in 2005, and that the system will generate cumulative excess cash reserves of about $11 million through the sixth year of operation.

Credit risks reflect Fitch's concern that the system will begin operating under city ownership with limited cash on its balance sheet and given that there is no operating history under direct city oversight. These concerns are partially mitigated by the line-of-credit the city has recently established with SunTrust Bank equivalent to 60 days of estimated working capital needs for $6 million. The rating assumes a five-year term to the line of credit, that the city has plans to initiate a policy to pay down the line at an accelerated rate should they draw upon it, and that, over time, this line of credit will be replaced by internally generated cash balances. In addition, termination risk associated with the swap agreement is expected to be mitigated with insurance.

The bond resolution is viewed positively and specifies that net revenues must equal at least 1.25x annual bond service and swap payment requirements. In addition, the additional bonds test permits new series of bonds as long as historical net revenues for any 12 consecutive calendar months of the 24 preceding months is at least 1.25x MADS. The debt service reserve fund will be supported by a surety bond.

The City of Winter Park will serve electricity to approximately 13,000 primarily residential customers within its nine square mile borders. The city is located in the center of the State of Florida, about five miles northeast of the city of Orlando, and is considered a part of the Orlando metropolitan area. Major commercial customers include Rollins College and the Winter Park Memorial Hospital.