Grand River Dam Authority -- Oklahoma -- $114MM Revs Rated 'A' By Fitch.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 1, 2002

Fitch assigns an 'A' rating to Grand River Dam Authority's (GRDA or the authority) $86 million electric revenue refunding bonds, series 2002 and $30 million capital appreciation bonds (CABs) series 2002. The rating on GRDA's outstanding $735 million revenue bonds has been affirmed at 'A'. The Rating Watch Evolving has been removed and the Rating Outlook is Stable. The refunding bonds, which are secured solely by electric revenues, will be issued to refund a portion of the outstanding principal amount of GRDA's electric revenue bonds. The proceeds from the CABs will be used to finance upcoming capital improvements. The bonds are expected to be insured and to price in late February with Lehman Brothers as the lead underwriter.

GRDA is a wholesale electric provider that supplies a diverse customer base, including electric cooperatives, municipalities, industrial customers, and off-system purchasers. GRDA operates two coal-fired units, GRDA 1 (100% owned) and GRDA 2 (62% owned), with a net generation capability of 812 megawatts (MW), in addition to owning several hydroelectric projects (bringing total capacity to 1,298 MW), and transmission facilities.

Fitch Ratings previously placed GRDA on Rating Watch Evolving after the loss of KAMO Electric Cooperative, a customer who accounted for 35% of GRDA's revenues at the time. Since then, the company has successfully made up for the loss by signing 3-5 year off-system firm contracts with several out-of-state municipal customers. In addition, GRDA signed a new agreement with Coffeyville, KS, making it a member system through 2006, and extended a contract with Stillwater, OK, its largest in-state municipal customer, through 2011.

The 'A' rating is further supported by the authority's low-cost power resources, very competitive wholesale rates, and a diversifying customer base. GRDA benefits from its inexpensive power supply with wholesale rates, averaging about 3.5 cents per kilowatt-hour (kwh) in 2001, and is among the low-cost providers in the region. GRDA's medium term financial outlook is solid, bolstered by renewed contracts and a planned rate increase of about 4.75% in July 2002. Pro forma debt service coverage ratios for the 2002-2006 period are projected to be in the 1.15-1.21 times (x) range. The company expects to be debt free after 2014.

Primary credit concerns include power sales contracts that expire prior to debt maturation, thin operating margins, and historically below-average debt service coverage ratios. The contract risk is partially offset by GRDA's low rates and its longstanding relationships with its native load customers. While debt service coverage levels are somewhat low for 'A' rated power bonds, GRDA has ample unencumbered cash reserves (around $80 million) and after major maintenance and capital improvements are completed on the hydroelectric facilities, GRDA has minimal capital needs going forward.