Fitch Ratings-San Francisco-20 April 2015:
Fitch Ratings has affirmed the ‘BBB+’ rating on the following Overton Power District No. 5, Nevada (OPD5) revenue bonds:
–$14.9 million special obligation revenue bonds, series 2008. The Rating Outlook is revised to Positive from Stable.
The bonds are secured by and payable from net revenues of the district’s electric system. In addition, the bonds share a parity mortgage and security interest in the district’s facilities with approximately $36.1 million of National Rural Utilities Cooperative Finance Corporation (CFC) notes.
KEY RATING DRIVERS
RELATIVELY SMALL DISTRIBUTION SYSTEM: OPD5 is a relatively small distribution system serving a predominately residential customer base of 14,500 in a rural service territory northeast of Las Vegas. The utility’s rate base is moderately concentrated with the top 10 customers accounting for approximately 27% of MWh sales and operating revenues in 2014.
STABILIZING FINANCIAL PERFORMANCE: The Positive Outlook reflects Fitch’s expectation that future financial performance will support debt service coverage of 1.3x or better, similar to results in 2013 and 2014. OPD5’s financial results improved and stabilized in 2013 following a multiyear period of very thin coverage of around 1x.
SOUND LIQUIDITY: The district’s available cash increased to approximately $7.6 million or 93 days cash on hand in 2014. A $5 million line of credit with CFC provides additional support, raising liquidity on hand to 155 days.
UNCERTAIN LONG-TERM POWER SUPPLY: The district’s wholesale power supply contract with Arizona Public Service (APS) expires at year-end 2017. Management plans on securing a post-2017 power supply by the end of summer 2015 and noted that all options remain available, including the potential addition of owned solar and natural gas resources.
STABILIZING SERVICE TERRITORY: The district’s service territory was significantly affected by the recession and has lagged the nation and surrounding metro areas in its recovery. However, local conditions appear to be improving, with a growing customer base, modest MWh sales growth following several years of decline, and on-going development in the area that may add a few significant customers.
FINANCIAL STABILITY & POWER SUPPLY: Continued financial stability, together with a favorable resolution of OPD5’s post-2017 power supply, would likely lead to a rating upgrade over the next two years.