Fitch Rates Bryan Texas Utilities, TX Rural Electric System Revs 'A+'; Outlook Stable
Fitch Ratings has assigned an 'A+' rating to the following bonds issued
by the city of Bryan, TX on behalf of Bryan Texas Utilities' (BTU) rural
electric system (the rural system):
--$16.6 million rural electric system revenue refunding and improvement
bonds, series 2016.
Bond proceeds will be used to finance distribution system improvements,
purchase a surety bond to fund the reserve fund, refund outstanding
bonds for savings, and pay costs of issuance. The bonds will be sold via
negotiated sale the week of July 11.
In addition, Fitch affirms its 'A+' rating on the following city
electric system obligations:
--$5,200,000 rural electric system revenue bonds, series 2008;
--$1,925,000 rural electric system revenue bonds, series 2011.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by net revenues of the rural electric system.
KEY RATING DRIVERS
RURAL ELECTRIC SYSTEM: Bryan's rural electric system is a retail
distribution system serving a largely residential customer base in a
quickly growing service area. The rural system is an all-requirements
wholesale customer of Bryan's city electric system (rated 'A+' with a
Stable Outlook). The two systems are separately financed but share the
same senior management and all administrative functions.
ADDITIONAL DEBT ISSUANCE: Proposed debt issuance through fiscal 2019 is
expected to pressure the rural system's financial profile. However,
despite a nearly tripling of outstanding debt and a reduction in debt
service coverage from nearly 5.0 times (x) in fiscal 2015 to
approximately by 2.3x in fiscal 2019, metrics should remain adequate for
the rating. Liquidity levels are projected to remain relatively low but
stable at close to 60 days cash on hand.
FLEXIBLE RATE STRUCTURE: The system's rate structure includes two
adjustable mechanisms tied to fuel costs and regulatory costs, including
transmission charges. Fitch views the flexibility provided by the
adjustable rate structure positively. Rates are expected to remain
competitive following a multiyear base rate increase of 9.9% that will
be fully implemented in October 2016.
GROWING CUSTOMER BASE: Electricity sales increased by 5.1% in fiscal
2015 and are expected to continue increasing due to significant growth
in the area. Additional development in all customer classes is expected
to continue despite a reduction in oil exploration activities in the
area.
RATING SENSITIVITIES
WEAKENING FINANCIAL METRICS: Bryan rural electric system's anticipated
borrowings through fiscal 2019 could result in financial metrics that
are inconsistent with the current rating unless offset by sufficient
rate increases and higher liquidity levels.
CREDIT PROFILE
The City of Bryan, TX is located approximately 90 miles west of Houston
in Brazos County and is considered a twin city of College Station, TX.
Bryan owns and operates two electric systems: the City Electric System,
which serves customers within city boundaries, and the Rural Electric
System, which serves areas outside the city's borders. The combined
systems are referred to as Bryan Texas Utilities (BTU). Each system,
while operated by a common staff, is maintained separately for
accounting and reporting purposes.
The rural system began operations in 1937 and provides electric service
to approximately 19,068 customers. The rural system's service territory
includes the immediate area outside the city of Bryan extending to most
of Brazos County, adjacent to and including portions of the City of
College Station, and parts of Burleson and Robertson counties in a
radius of about 20 miles from the City of Bryan.
The rural system is an all requirements customer of the city system. The
city system has sufficient capacity to meets its power needs, including
those of the rural system, through its own natural gas fired resources,
ownership share in the Gibbons Creek coal fired plant through Texas
Municipal Power Agency (TMPA), and long-term purchase power contracts.
PROJECTED DECLINE IN FINANCIAL METRICS
The rural system's financial performance remained strong in fiscal 2015
with Fitch calculated debt service coverage and coverage of full
obligations at 4.95x and 1.42x, respectively. While coverage levels are
above medians for similarly rated retail systems, the rural system's
liquidity level are comparatively low at just 64 days cash on hand.
However, as a distribution retail system with an all-requirements
contract, the rural system's liquidity needs are more predictable
relative to vertically integrated utilities with generation operating
responsibilities or purchasing utilities that may have collateral
posting requirements.
Management's financial projections through fiscal 2021 reflect the
system's growing debt burden and its impact on financial performance.
Following the current issuance, annual debt service costs are expected
to increase to approximately $2 million and coverage will decrease to
just under 3.0x through fiscal 2018. An additional debt issuance in
fiscal 2019 tentatively sized at $16 million would further reduce
coverage levels to around 2.3x.
Projected liquidity is expected to remain relatively low for the rating
with no less than 58 days cash on hand through fiscal 2021. Reductions
below the forecast levels for debt service coverage or liquidity could
pressure the rating.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S. Public Power Rating Criteria (pub. 18 May 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864007
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008365
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008365
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
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WEBSITE.
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