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Rating Action:

Moody's assigns A2/VMIG-1 to Atascosa County Industrial Development Corporation Variable Rate Pollution Control Refunding Revenue Bonds, Series 2008 (San Miguel Electric Cooperative, Inc. Project)

09 Jul 2008
Moody's assigns A2/VMIG-1 to Atascosa County Industrial Development Corporation Variable Rate Pollution Control Refunding Revenue Bonds, Series 2008 (San Miguel Electric Cooperative, Inc. Project)

Approximately $ 77.2 Million of Debt Securities Affected.

New York, July 09, 2008 -- Moody's has assigned the rating of A2/VMIG-1 to $77,200,000 Atascosa County Industrial Development Corporation Variable Rate Pollution Control Refunding Revenue Bonds, Series 2008 (San Miguel Electric Cooperative, Inc. Project) due June 30, 2020. The long term portion of the rating is based upon the guaranty provided by National Rural Utilities Cooperative Finance Corporation (NRUC). The short-term portion of the rating is based on the Standby Bond Purchase Agreement provided by NRUC. The rating outlook is stable.

Proceeds from the bond offering will be used to redeem the entire outstanding principal amount of Nueces River Industrial Development Authority Unit Priced Demand Adjustable Pollution Control Refunding Revenue Bonds, Series 1984 (San Miguel Electric Cooperative, Inc. Project).

The bonds will initially bear interest at the weekly rate, and pay interest on the first business day of each month. The bonds may be converted in whole to the daily, flexible, term, fixed, or auction rate modes. Upon conversion, the bonds are subject to mandatory tender for purchase at a price of par plus accrued interest. The short-term rating covers bonds in weekly rate mode only and will expire upon conversion to any other rate mode.

The trustee will pay principal and interest on the bonds from monies received from the issuer paid solely from loan payments to be made by San Miguel Electric Cooperative, Inc. (San Miguel), and to the extent such monies are insufficient, from funds obtained under the NRUC guarantee. In addition, the guarantee covers payments made with monies from the issuer which are subject to recovery as avoidable preferences under the applicable bankruptcy code. Purchase price for optional tenders and mandatory tenders will be paid with remarketing proceeds on deposit with the tender agent, and if insufficient, from a draw under the standby bond purchase agreement.

Bondholders may tender their bonds during the weekly rate mode on any business day, with seven days prior notice to the tender agent. Bonds which are purchased by the standby bond purchase agreement provider due to a failed remarketing may not be released by the tender agent unless it has received confirmation that the liquidity facility has been reinstated in the amount of the purchase price drawn for such bonds.

Bonds are subject to mandatory tender for purchase on the date upon which (i) an alternate credit enhancement or alternate liquidity facility is substituted for the credit enhancement or the liquidity facility then in effect (substitution date); (ii) on the fifth business day prior to the expiration of the liquidity facility; (iii) not more than five days but not less than three days after the trustee's receipt of a notice from NRUC following the occurrence of any event of default under the standby purchase agreement; and (iv) on any change in mode date.

The NRUC guaranty will insure payment on stated maturity dates, in the case of principal, and stated payment dates for interest. Security for payments of purchase price upon optional or mandatory tenders is derived from the standby bond purchase agreement provided by NRUC. The liquidity facility is sized for full principal plus 34 days of interest at the maximum rate (15%). The standby bond purchase agreement covers bonds in the weekly mode and do not cover bonds in any other rate mode. The standby bond purchase agreement expires upon the earliest to occur of (i) the date on which no bonds are outstanding; (ii) the substitution date, provided NRUC has honored all draws in connection with such substitution; (iii) the business day immediately following conversion to another mode; and (iv) the date on which NRUC commitment to purchase bonds terminates pursuant to an immediate termination event.

The tender agent will draw on the standby bond purchase agreement in accordance with its terms, in order to make payments of purchase price on each purchase date net of remarketing proceeds already on deposit. The tender agent will draw by 12:30 p.m., Eastern Time, in order to receive payment by 3:00 p.m. on the same day. The standby bond purchase agreement will reinstate for the amount of each draw upon reimbursement to NRUC.

NRUC's A2 senior unsecured rating is based on its excellent competitive position, including an ability to raise margins on member loans; management's strong track record in managing credit restructurings; the high quality of its loan portfolio measured in terms of loan loss history and collateral position; and the declining exposure to the telecommunications sector. The rating also takes into account management's efforts in recent years to reduce the degree of single obligor exposure within the loan portfolio; the company's reliance on capital markets to fund its business, its continuing high leverage and the challenges associated with managing certain problem loans. With respect to the latter, the rating factors in the current exposure with a large non-performing loan to a telecommunications borrower.

NRUC's stable outlook considers an expectation of fairly modest loan growth with low risk electric distribution cooperatives representing an increasing portion of its portfolio, continued maintenance of a significant loan loss reserve, management of the telecom loan portfolio so it does not exceed 10% of total NRUC total loans, and continued use of other existing portfolio management tools that have reduced single obligor risk and enhanced overall asset liquidity. Additionally, the stable outlook assumes a reasonable outcome for a large non-performing loan exposure and an expectation of continued receipt of scheduled payments from CoServ, which has a large restructured loan with NRUC.

Based in Herndon, Virginia, NRUC is a private, not for profit cooperative association exclusively serving rural electric, service, and telecommunication utilities. The principal purpose of NRUC is to provide its members with a source of financing to supplement the loan programs of the Rural Utilities Service of the United States Department of Agriculture. At February 29, 2008, NRUC had total assets of approximately $19.26 billion, of which loans to members represented approximately $18.66 billion. At February 29, 2008, more than 90% of NRUC's total loan portfolio was with rural electric cooperatives.

For more information on NRUC, please refer to the Analysis dated December 28, 2007 and the most recent Credit Opinion dated December 20, 2007. Both can be found on moodys.com under the issuer's name.

San Miguel Electric Cooperative

San Miguel was formed in 1977 to own and operate the San Miguel Electric Plant -- Unit 1, a 400 MW (net) lignite-fired generating unit (the Plant). Virtually all of San Miguel's revenues are based upon providing wholesale electric power to two of its 26 members, Brazos Electric Power Cooperative, Inc. (Brazos) and South Texas Electric Cooperative, Inc. (STEC) under long-term wholesale power contracts that expire on June 30, 2020. These wholesale power contracts specifically provide that San Miguel establish rates to produce revenue sufficient, together with revenues from all other sources, to pay the cost of operation and maintenance of the Plant, transmission and other related facilities, to pay the cost of any power and energy purchased by San Miguel, to pay the cost of transmission services, to pay the principal and interest on all indebtedness and to provide for the establishment and maintenance of reasonable reserves. Additionally, there is a rate covenant in San Miguel's mortgage obligating the cooperative to design and implement rates for electric capacity, energy and other services to provide sufficient revenue (along with other revenue available to San Miguel) to (i) pay all fixed and variable expenses when and as due, (ii) to provide and maintain reasonable working capital and (iii) to maintain, on an annual basis, a times interest earned ratio and a debt service coverage ratio of 1.0x.

Brazos, a generation and transmission electric cooperative (G&T), sells power to its sixteen member distribution cooperatives pursuant to wholesale contracts which cannot be terminated before 2045, and which require each distribution cooperative to purchase from Brazos all of its power requirements. Brazos' service territory extends across 68 counties from the Texas Panhandle to Houston and distribution cooperative members provide electric distribution services to an estimated 463,000 customers covering about 21.6% of Texas' land area.

STEC sells power to six of its eight member distribution cooperatives pursuant to members' contracts which cannot be terminated before 2025. The remaining two members have contracts that which cannot be terminated before 2010. The STEC distribution cooperatives extend into all or part of 42 counties in south Texas.

New York
A.J. Sabatelle
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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