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
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
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
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'
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.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
William L. Hess
Corporate Finance Group
Moody's Investors Service