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Rating Action:

Moody's assigns A1 to American Municipal Power, Inc. Prairie State Refunding Bonds; outlook stable

14 Jan 2019

$168 Million Refunding Bonds for Interest cost savings

New York, January 14, 2019 -- Moody's Investors Service has assigned an A1 to the $168 million American Municipal Power, Inc. (AMP) Prairie State Energy Campus Project Revenue Bonds, Refunding Series 2019A. The Series 2019A bonds are scheduled to sell January 17, 2019 and the proceeds will be used to refund certain maturities of outstanding Refunding Series 2015B bonds (Subseries 2015 B-1) and Refunding Series 2015 C bonds. The outlook is stable.

RATINGS RATIONALE

The main consideration in the assignment of the A1 credit rating is the strong bond security which includes the unconditional take-or-pay obligation of 68 Midwestern municipal project participants (cities) in the AMP Inc. Prairie State project (weighted average participant credit quality of A2) to pay O&M and debt service on the revenue bonds. The obligation pursuant to the power sales contract through December 31, 2057 of the AMP project participants is an unconditional obligation and is payable by participants regardless whether the project operates or not. An additional important consideration in the rating is the strong role American Municipal Power, Inc. (A1 stable) plays in member power supply management and contract compliance.

Another important credit factor is the sound competitive position of the Prairie State coal-fired generation units which averaged an 80% net capacity factor in 2017 and 2018, with the plant management's objective to remain in the 80% range in future years. Operating at this capacity factor indicates the plant is being consistently competitively dispatched into the regional energy markets. The heat rate and O&M costs were among the lowest in Illinois for peer base load coal-fired generation units.

RATING OUTLOOK

The rating outlook is stable given that both units are commercial and operating at strong capacity factors and participants are expected to remain in full compliance with the strong take-or-pay contracts that lend credit stability.

FACTORS THAT COULD LEAD TO AN UPGRADE

- All-in costs of Prairie State improve relative to regional comparable energy prices.

- Project participant credit quality improves.

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Any participant successfully challenging through litigation their take-or-pay Prairie State contract that is the underpinning of credit quality.

- AMP Prairie State participant credit quality weakens

- The Prairie State production cost rises significantly due to carbon pricing and impacts participant retail electricity prices or should the two units net capacity factors decline significantly in the next year.

LEGAL SECURITY

Under the master trust indenture, AMP pledges its net revenues, derived from take-or-pay power sales contracts with 68 municipal participants, payable regardless of whether the project is completed, operating, or operable.

The take-or-pay contracts have a 25% step-up provision. The master indenture includes a 1.10x rate covenant and a 1.10x additional bonds test after commercial operation. There is a fully funded maximum annual debt service reserve.

The member payments are payable as O&M expenses of their respective electric systems. All participants are current on the payment of AMP billings.

The power sales contract also has a "fall back provision-if the take-or-pay provision is invalidated by any court of competent jurisdiction, the obligation becomes a take and pay obligation not subject to reduction, whether by set-off, counterclaim and is not conditioned on performance of either party.

USE OF PROCEEDS

The current offering is an advanced refunding of portions of outstanding bonds. The refunding is being done to maximize interest cost savings to lower debt service over the next five years to better position the project cost structure in relation to participant billings. The final maturity of the AMP debt will not be extended.

PROFILE

AMP was established by state statute (Ohio Revised Code Chapter 1702) as a non-profit corporation in 1971 to provide its members, which are municipal electric utilities, a reliable and competitive power supply. AMP is governed by a 21-member Board of Trustees made up of officials from 20 member municipalities and Delaware Electric Municipal Electric Corporation (DEMEC). AMP operates like a joint powers agency and most of its members have home rule charters which permit retail rates to be set by the local governing boards with no external regulation.

METHODOLOGY

The principal methodology used in this rating was US Municipal Joint Action Agencies published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

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.

Daniel Aschenbach
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.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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