Floresville TX $4.5M Revenue Bonds Rated `A-` by Fitch IBCA.

NEW YORK--(BUSINESS WIRE)--July 28, 1999--

The City of Floresville, TX's $4.5 million electric light and power system improvement revenue bonds, series 1999 are assigned an underlying `A-' rating by Fitch IBCA. The bonds are scheduled to sell competitively on Aug. 12 and will mature serially Aug. 15, 2000-2023, with optional redemption on or after Aug. 15, 2010. The bonds are expected to be insured by FSA, whose claims-paying ability is rated `AAA' by Fitch IBCA. In addition, the underlying `A-' is also assigned to the city's $6.8 million outstanding improvement revenue bonds.

Net revenues after operating and maintenance expenses are pledged as security on both the new issue and all bonds on parity. Credit characteristics include strong financial performance and management, a strong cash position, low cost power provided by a stable wholesale power source and statutory protection from future competition, offset by a small but stable customer base located in rural areas.

Located approximately 30 miles southeast of San Antonio, the service area that encompasses the incorporated cities of Floresville, Poth, and Stockdale is largely rural and residential in character. Floresville Electric Light and Power System (FELPS) provides electric service to 10,800 customers located in this 600 square mile territory and receives all of its power requirements from City Public Service (CPS) of San Antonio, rated `AA+' by Fitch IBCA. Electric rates are competitive and have not increased since 1989. The competitive position of CPS along with the strong wholesale relationship and the statutory protection that provides FELPS with the option of competing provide stability to credit quality. In addition to legislation that allows municipally owned utilities to opt out of competition, the lack of a large commercial presence and low population density provides disincentive to potential competition.

This bond issue represents one-third of the five-year $13.7 million capital improvement program (CIP). Since FELPS is strictly a distribution system, capital needs are limited to the construction of substations and maintenance of other distribution facilities. The new bond issue will increase the amount of debt relative to net plant in the near term from 32% in 1998 to over 40%. The system's equity position, now equal to 73%, will be diluted following this new issue of debt, but should return to historic levels of over 70% as the system funds the remainder of the five-year CIP with current resources.

Financial operations and management are sound. Management is taking proactive steps to improve reliability and increase customer service as a way to prepare for potential future competition in a deregulated environment. Strong growth in power sales and the corresponding revenue have resulted in strong cash balances. Unrestricted cash represented close to 10 months operating expenses at the end of fiscal 1998. Coverage of maximum annual debt service, which occurs in 2002, was 2.6 times and should remain ample assuming conservative growth estimates.