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Fitch Rates Oglethorpe Power Corp.'s Taxable FMBs & Tax Exempt PCRBs 'A'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an underlying rating of 'A' to Oglethorpe Power Corporation's (OPC) $500 million taxable first mortgage bonds (FMBs), series 2007. Fitch also assigns an underlying 'A' rating to $182 million of series 2007 tax-exempt auction rate pollution control bonds (PCRBs) that are being issued for the benefit of OPC through the Development Authority of Appling County (GA), the Development Authority of Burke County (GA), and the Development Authority of Monroe County (GA). The first mortgage bonds and the pollution control bonds are senior secured lien obligations of OPC. The Rating Outlook is Stable. In addition, Fitch affirms the 'A' rating on OPC's outstanding FMB's and outstanding PCRBs issued for the benefit of OPC by various development authorities, and the 'A' rating on the OPC Sherer Fund Corp. bonds. Fitch Also affirms the 'F1' short-term rating for OPC, and the OPC Sherer Funding Corp..

The FMBs and PCRBs are being issued to prepay certain Federal Financing Bank (FFB) debt and refinance existing PCRBs, respectively, and are part of OPC's debt restructuring that will better match its principal amortization with its asset deprecation. This re-amortization of OPC debt was made possible in connection with the recent extension of its member wholesale power contracts to 2050 from 2025.

OPC's FMBs are taxable fixed-rate bonds and are being issued primarily to prepay certain FFB bonds, helping to improve OPC's free cash flow, bolster cash liquidity and allow the system to fund approximately $400 million of capital additions from cash flows. The taxable series 2007 bonds are scheduled to price the week of Sep. 24, 2007 with Goldman Sachs as lead manager. Depending on market conditions the size of the transaction may vary. OPC expects the 2007 bonds to be insured and carry an 'AAA' rating by Fitch.

The pollution control bonds will be issued the week of Sep 22, 2007 with JP Morgan as lead manager. The PCRB's will be issued as auction rate notes (ARNs). The ARNs include the Development Authority of Appling series 2007A and 2007B, Development Authority of Burke County series 2007A through 2007F, and the Development Authority of Monroe County series 2007A. OPC expects the 2006 ARNs to be insured by MBIA and carry an 'AAA' rating by Fitch.

The rating takes into account OPC's debt restructuring and management's need to maintain prudent debt amortization. These two financings, together with OPC's expected future refinancings of PCRB's and capital additions (including the possible participation in Vogle nuclear units 3 and 4), will produce a depreciation curve that will cover OPC's bond amortization within the useful life of its assets. However, it should be noted that the aggregate restructuring extends the average life of OPC's legacy debt thus spreading that debt burden over a longer period of time. Fitch believes this plan and level of leverage is reflected in the 'A' rating.

Listed below are key credit strengths, concerns and drivers for OPC's underlying rating.

Credit strengths include:

-- Take-or-pay contracts with its members through 2050.

-- Well-developed management practices.

-- Diversified and reliable power supply portfolio.

-- Solid financial profile.

Credit Concerns include:

Concerns center on OPC's members growing power requirements and their need to develop additional power supply to replace the existing supplemental arrangements that expire between 2010 and 2017 (assuming no contract extension elections are made). Since 1997, OPC members have had primary responsibility for their incremental power supply needs above existing OPC resources (approximately 30% in 2006, increasing to around 50% by 2012). The members are currently exploring several ownership and long-term purchase opportunities for additional base load generation. One project involves the development of additional nuclear generating units by OPC on behalf of its members.

OPC and the other three co-owners of the existing two Voglte nuclear units executed a joint agreement to explore the development of two additional nuclear units on the site. The Voglte co-owners have filed for an Early Site Permit with the Nuclear Regulatory Commission (NRC; an initial step in NRC's new approval process for new nuclear units). OPC currently has the ability to take up to 30% of the two additional proposed units. In April 2008 OPC must decide if and to what extent it will participate in the new units (this decision is binding). While the preliminary estimate of its 30% share is $1.8 billion, including interest during construction, new estimates are expected out shortly. The development of this and other projects is an important component of OPC's credit profile and Fitch will carefully monitor their development and scope of risk.

With annual revenues around $1.2 billion, $5 billion of assets, and energy sales of 23 million mwh's in 2006, OPC is the largest wholesale electric cooperative in the nation serving a portion of the power supply needs to 38 Georgia electric distribution cooperatives. In aggregate, the distribution members serve over 1.6 million customers or a population of approximately 4.0 million with residential and commercial industrial customers comprising 68% and 23%, respectively, of member revenues. OPC has maintained an 'A' rating and Stable Rating Outlook since the restructuring in 1997, which established OPC as a generation-only company (having sold its transmission assets to the Georgia Transmission Corporation, currently rated 'AA-' by Fitch).

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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Publication:Business Wire
Date:Sep 7, 2007
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