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Rating Action:

Moody's assigns Aa3 to Southern California Public Power Authority's Canyon Power Project Refunding Revenue Bonds, 2018 Series A and B ; Outlook stable

20 Apr 2018

Refunding for anticipated present value savings

New York, April 20, 2018 -- Moody's Investors Service has assigned a Aa3 rating to Southern California Public Power Authority's $110 million Canyon Power Project Refunding Revenue Bonds, 2018 Series A (Fixed Tender Bonds - Term Rate Mode) and the $110 million Canyon Power Project Refunding Revenue Bonds, 2018 Series B (Index Tender Bonds - SIFMA Mode). The rating outlook is stable.

The new bonds are a refunding of 2017 Series A bonds that were a direct purchase transaction. The bonds are solely the take-or-pay obligation of the City of Anaheim electric enterprise (rated Aa3/stable) payable from electric revenues. The sale is expected to take place in early May.

The 2018 Series A bonds will be initially marketed by a tender agent in the fixed rate mode and the 2018 Series B in the index mode. There is no source of liquidity to pay the purchase price of the tendered bonds upon mandatory tenders other than the remarketing proceeds or refunding proceeds. Non-purchase is not an event of default and bonds not purchased on the mandatory tender dates will be returned to the bond holder. During a delayed remarketing, the bonds will accrue interest at higher fixed interest rates until remarketed, redeemed or paid at maturity. For the period after the scheduled mandatory purchase date, the unpurchased bonds would have interest at 6% through the first 90 days; 8% through 179 days and 10% thereafter.

RATING RATIONALE

The SCPPA Canyon Project Aa3 rating reflects the reliance on Anaheim Electric Enterprise, rated Aa3 with a stable outlook, for all of its cash flow for operations and debt service. The SCPPA Canyon Project has sound financial liquidity including access to the SCPPA Project Stabilization Fund and generated a fixed obligation charge coverage of 1.16x between FY 2015-2017. These collective strengths are balanced against high leverage and the lack of a debt service reserve for the 2018 Series A and B bonds, which is partly mitigated by the existence of a SCPPA Project Stabilization Fund.

The Canyon Power Project is a 200MW peaking simple cycle, natural gas fired, electric generating plant. The project is operated and owned by Anaheim which it has financed the project through SCPPA to utilize its professional staff and to provide flexibility for meeting potential future capacity needs through its partnerships within SCPPA. The project assists Anaheim in meeting several key objectives for the utility's power supply strategy including power during summer peak periods, adding additional power in-basin to meet Anaheim's summer peak demand period helping, and the utility to better meet its needle peak. Canyon is also utilized for balancing additional load as more intermittent renewable resources become part of the power supply. Plant availability factor has consistently exceeded 90%.

Anaheim electric system's fixed obligation charge ratio for FY 2017 was 1.55x and days liquidity on hand was in excess of 150 days including bank lines. In addition, Anaheim has a strong service territory economy, a competitive rate structure, flexible cost recovery provisions permitting pass through adjustments for fuel, purchased power, and environmental costs, and a proactive strategy in place to comply with California carbon emissions requirements.

Anaheim's management has shown a willingness to restructure rates to capture more fixed costs in the base rate to meet its financial goals to improve the utility's coverage metrics over the next few years. The general manager has the authority to quickly pass through rate adjustments within certain parameters without City Council initial action (later trued-up) which further strengthens the utility's financial position. Moreover, Anaheim Electric is one of several California municipal utilities reducing its carbon exposure from its generation resource portfolio by adding renewable energy to its power supply mix while maintaining sufficient reserve capacity. Anaheim is on track to reach the state requirement of meeting 33% of retail load through renewable energy by 2020, with 27% of its resource portfolio comprising renewable energy at the end of 2017. In that regard, Anaheim plans to exit San Juan, further reducing its coal-fired generation. (For more information on the city of Anaheim Electric Enterprise, please see the most recent Credit Opinon dated December 4, 2017, which can be found on moodys.com.)

RATING OUTLOOK

The stable outlook reflects the credit strengths of Anaheim Electric as the sole participant and the strong legal security provided by the take-or-pay contracts with SCPPA for payment of the project's O&M expenses and debt service.

FACTORS THAT COULD LEAD TO AN UPGRADE

The rating could be upgraded should the Anaheim electric revenue bonds be upgraded.

FACTORS THAT COULD LEAD TO A DOWNRGADE

The rating could be downgraded should cost escalation arise putting pressure on Anaheim to meet its obligations. Additionally, a downgrade of electric revenue bond rating would likely to lead to a downgrade on the SCPPA Canyon Revenue Bonds.

LEGAL SECURITY

The SCPPA Canyon Power Project Revenue Bonds are secured by the revenues derived from the take-or-pay contract obligation between SCPPA and the Anaheim electric utility. There is no debt service reserve for the Series 2018 bonds but the prior bonds were secured with a debt service reserve fund.

USE OF PROCEEDS

Proceeds from the 2018 Series A and 2018 Series B bonds will used to refund 2017 Series A bonds for present value savings.

PROFILE

The Southern California Public Power Authority is comprised of eleven California cities and one irrigation district. Anaheim, a SCPPA member, entered into the Canyon Power Project Power Sales Agreement, dated October 1, 2008 and has the sole take-or-pay obligation for the Canyon Power Project O&M and debt service.

METHODOLOGY

The principal methodology used in these ratings 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

Michael Mulvaney
MANAGING DIRECTOR
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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