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Rating Action:

Moody's affirms Baa3 rating on Municipal Electric Authority of Georgia's Plant Vogtle Units 3&4 Project J bonds; changes outlook to positive from negative

30 Jun 2020

New York, June 30, 2020 -- Moody's Investors Service has affirmed the Baa3 rating for Municipal Electric Authority of Georgia's (MEAG Power) Plant Vogtle Units 3&4 Project J Bonds, affecting approximately $1.97 billion of outstanding rated debt. Concurrent with the rating affirmation, Moody's has changed the outlook for MEAG Power Project J Bonds to positive from negative.

RATINGS RATIONALE

The rating affirmation and revision of the outlook to positive from negative primarily reflects the significance of the June 17, 2020 federal court ruling by a U.S. District Court judge regarding the validity of the power purchase agreement (PPA) between MEAG Power and JEA, FL - Electric Enterprise (JEA: A2 negative). The court order declared that the PPA between MEAG Power and JEA is valid and enforceable, strengthening the security pledge for the Project J bonds. Moreover, this judicial decision solidifies the legal framework under which JEA is required to make payments to MEAG Power for the first 20 years of the Project J bonds.

Notwithstanding the credit positive aspects of this decision for Project J bondholders, the rating action remains tempered by the fact that JEA could ultimately appeal the court decision, which would further prolong litigation risk for Project J bondholders. Moreover, the judge's decision enables both MEAG Power and JEA to pursue their respective counterclaims against the other party which includes MEAG Power's counterclaim against JEA for breach of contract and JEA's counterclaim against MEAG Power for negligent performance. We understand that, in the absence of a settlement among the two parties, the timing for resolution of this litigation through the courts could continue through the first quarter of 2021. That said, while the final outcome of this litigation continues to have uncertain elements for both parties, the June 17th federal court decision with respect to the validity of the PPA lowers default risk for the Project J bondholders.

Additional considerations that remain relevant to Project J's credit profile are JEA's continued payment under the PPA that includes debt service for the Project J bonds along with the utility's public statements that it intends to honor its Project J PPA obligations unless relieved of its obligations by a court. We further note that notwithstanding the uncertainty around the outcome of this litigation, Project J was able to access the debt markets through a limited public offering in July 2019, which substantially reduced its remaining need for public debt issuance based upon the latest Vogtle Units 3&4 project (the Vogtle project) cost budget. Also, Project J has $111.5 million of undrawn capacity under the lower cost US Department of Energy (DOE) Federal Guaranteed Loan Program, which offers good prospects for net present value interest expense savings and is also a sign of continued support for the Vogtle project from the US Government despite substantial delays and cost overruns. We also observe that under the Vogtle project's revised joint owners agreement, Georgia Power Company (Baa1 stable) has agreed to provide up to a $250 million loan to MEAG Power - Project J and also to purchase the rights to production tax credits (PTCs) attributable to MEAG Power - Project J's share of the Vogtle project, provided that the aggregate purchase price for rights to PTCs and any loans provided shall not exceed $300 million.

RATING OUTLOOK

The positive outlook considers the incremental progress from the June 17th decision relating to the litigation between MEAG Power and JEA leading to a higher likelihood that the PPA between MEAG Power and JEA will remain intact, providing greater certainty that JEA will continue to abide by the terms of a PPA obligation which covers Project J's share of costs for the first 20 years, including debt service on the Project J bonds.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- A positive action could result if the MEAG Power and JEA litigation is resolved in a way that maintains the sanctity of contract for the PPA either through a mutually agreeable settlement or through an unappealable decision by the courts.

- Assuming the litigation with JEA is addressed in a credit neutral fashion and JEA's credit quality remains unchanged or improves, a positive rating action could also result if nuclear construction risks are reduced through further assurances that the Vogtle 3&4 project can be completed within the latest revised budget by November 2021 and November 2022, respectively.

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Significant negative rating pressure would result if it appears likely that the federal court ruling will be reversed on appeal enabling the Florida municipal utility to cease its participation in the Vogtle project.

- A negative action could result if there is any material decrease in currently strong regulatory, political, public and co-owner support for the Vogtle project

- A rating downgrade could also be driven by a significant construction delay in the Vogtle project that substantially increases the project costs leading to an impairment or abandonment decision by the co-owners

LEGAL SECURITY

The Project J bonds are secured by a pledge of the Bondholders' Trust Estate under the Project J Bond Resolution which includes proceeds of the sale of Project J bonds and a pledge of the Shared Trust Estate under the Project J Bond resolution on parity basis with debt service on the Project J DOE guaranteed loan, which includes revenues derived from the Project J PPA contracts between MEAG Power and JEA and between MEAG Power and its Project J participants. The payments are required whether or not the project is constructed or operable. A fully funded maximum annual debt service reserve is available for Project J. JEA will pay (a) all operating costs of Project J attributable to each of Vogtle Units 3&4 for the first 20 years after commercial operation of each unit and (b) the first 20 years of debt service costs of Project J attributable to each of Vogtle Units 3&4. After the 20-year period during which JEA is responsible for the payment of operating and debt service costs, those costs become the obligations of the 39 MEAG Power Project J participants. For Project J, the underlying contracts were validated in the Superior Court of Fulton County, Georgia by judgments on November 18, 2008, on January 19, 2010, and on April 20, 2015.

PROFILE

MEAG Power provides bulk power to its 49 participants through various projects which are comprised of various generation assets and separately rated. MEAG Power has a 22.7% ownership interest (500.3 MW) in the 2,204 MW Vogtle 3&4 project which is a new nuclear project under construction and is adjacent to Vogtle Nuclear Units 1&2, near Augusta, Georgia. MEAG Power's 22.7% ownership in Vogtle 3&4 is divided among three projects: Project M (33.871% of the 22.7% ownership), Project P (24.955% of the 22.7% ownership) and Project J (41.175% of the 22.7% ownership).

METHODOLOGY

The principal methodology used in these ratings was US Municipal Joint Action Agencies Methodology published in August 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1163699. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jennifer Chang
Lead Analyst
Project Finance
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Kurt Krummenacker
Additional Contact
Project Finance
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
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U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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