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15 Oct 2010
New York, October 15, 2010 -- Moody's Investors Service today affirmed Great River Energy's (Great
River) A3 secured rating and changed the rating outlook to negative from
The change in outlook was prompted by a material weakening of key financial
credit metrics observed in recent years. The financial decline
is due in part to a sizable capital spending period and a drop in non-member
power sales that previously benefited financial results. Additionally,
we note that one capital project, the Spiritwood Station generating
facility, has experienced cost escalation and continuing delays
that may continue to impact results going forward. Prospectively,
we believe Great River's capital spending will remain elevated (albeit
at lower levels) and result in a negative free cash flow position for
at least the next several years. We expect Great River will continue
to utilize its bank lines to fund short-term needs until longer-term
financing can be arranged. However, Moody's incorporates
a view that Great River, and the cooperative sector in general has
the flexibility to raise rates to maintain targeted levels of key financial
credit metrics. We believe that Great River will need to exercise
this rate autonomy in the future to support its existing ratings.
In affirming the rating we acknowledge the company's strong credit
attributes including its long-term wholesale power contracts with
members (through 2045), ability to adjust rates as needed without
intervention from state regulators and competitive power-cost position
from its predominately coal-fired electric generating assets.
We note as well that approximately 60% of the company's power requirements
are derived from one owned facility, Coal Creek Station.
Although a highly efficient facility, any unexpected extended outage
from this plant, or the transmission assets connected to it,
could have a negative impact on the company's power costs. Future
environmental regulations could also have a negative impact.
Great River continues to maintain adequate liquidity; reporting cash
on hand of $240 million at September 30, 2010, and
availability of $375 million under its credit lines. The
company maintains a syndicated $600 million unsecured revolving
credit facility that expires in December 2011 ($325 million was
borrowed at September 30, 2010) and a $100 million short-term
facility with CoBank ACB (expires October 31, 2010).
We see little evidence for upward pressure on the rating over the near-term.
Alternatively, we note that funds from operations to debt at year-end
2009 was 4.1%, below the 6%-10%
range outlined for the "A" rating category for cooperatives.
Failure to demonstrate improvement in this area could result in further
negative rating actions.
The principal methodology used in rating Great River was U.S.
Electric Generation & Transmission Cooperatives rating methodology
published in December 2009. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found on Moody's website.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
Headquartered in Maple Grove, Minnesota, Great River Energy
is a not-for-profit electric generation and transmission
cooperative providing wholesale electric power to its 28 distribution
members who are its owners. Great River owns approximately 2,751
MW's of generating capacity, 4,553 miles of transmission lines
and reported operating revenues of $788 million in 2009.
Infrastructure Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Affirms Great River Energy at A3; Changes Outlook to Negative
250 Greenwich Street
New York, NY 10007
No Related Data.
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