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15 Mar 2011
Approximately $180.38 million of debt affected
New York, March 15, 2011 -- Moody's Investors Service assigned Baa1 ratings to three planned series
of senior secured pollution control revenue bonds ($180.38
million in aggregate) to be issued by three Georgia Development Authorities
on behalf of Oglethorpe Power Corporation (OPC). Specifically,
the ratings assigned relate to $40.53 million to be issued
by the Development Authority of Appling County, GA, for OPC's
Hatch Project; $92.24 million to be issued by the Development
Authority of Burke County, GA, for OPC's Vogtle Project;
and $47.61 million to be issued by the Development Authority
of Monroe County, GA for OPC's Scherer Project. Concurrently,
Moody's affirmed all of OPC's existing ratings, including
its senior secured obligations at Baa1, its Issuer Rating at Baa2,
and the company's Prime-2 short-term rating for its
commercial paper program. The rating outlook for OPC remains stable.
The rating assignments, rating affirmations and stable rating outlook
reflect our view that the current rating level captures our concerns that
OPC has materially increased its business risk with a substantial multi-year
capital spending plan and that this elevated risk profile has not been
mitigated by any meaningful improvement in credit metrics or cash flows.
The centerpiece of the build-out, at approximately $4.2
billion, is OPC's 30% participation in the expansion of the
Vogtle nuclear facility in Waynesboro, Georgia. Although
the recent nuclear incidents in Japan, specifically with respect
to the Fukushima-Daiichi and Fukushima-Daini nuclear power
generating stations, will be viewed as a material credit negative
for the US nuclear generation industry, they are not sufficient
enough to result in a change to individual issuer ratings or rating outlooks
at this time. While new nuclear construction brings its own unique
challenges, OPC has also announced future investment in required
environmental controls at existing facilities and plans to purchase about
1,220 megawatts of combined cycle natural gas fired electric generating
facilities from KGen LLC for approximately $531 million.
The additional new generating capacity will further add to the increase
in balance sheet debt anticipated with the Vogtle expansion. Funding
for the purchase of facilities from KGen is expected to be provided initially
by a combination of newly arranged bank term loans and draws under existing
bank credit agreements, pending future long term funding under the
RUS loan program and/or through the public debt markets to better match
the tenor of the debt with the estimated life of the assets being purchased.
Moody's acknowledges OPC's credit positives, including its large
size relative to its electric cooperative peers in the U.S.,
its base-load electric generating profile, long-term
wholesale power supply contracts (through 2050) with its 39 member-owners
in the state of Georgia, and the relatively healthy financial profile
of its distribution members. Importantly, the rating also
considers the company's absence of state regulation with respect to rate-setting.
On average, most of OPC's key credit metrics are currently within
the Baa category range, according to the Rating Methodology for
U.S. Electric Generation & Transmission Cooperatives.
Prospectively, the capital investment plans expected over the next
several years are not anticipated to provide any meaningful improvement
to the financial profile. For example, OPC's funds from operations
(FFO) to debt of approximately 4.2% is below the 6-10%
range for the "A" rating category for electric cooperatives and the company's
equity to capitalization at approximately 10% is materially below
the 20-35% range for the "A" category (both metrics as of
September 30, 2010). These financial metrics are expected
to continue to decline over the next several years. Absent a material
change to the prospective financial profile, there is the possibility
that rating stress could develop over time.
In addition to the nuclear construction risk, OPC will need to carefully
manage its liquidity to help manage the financing risk associated with
the various projects. At this time OPC's liquidity appears adequate.
OPC continues to maintain approximately $1.125 billion of
credit lines ($475 million of which is a syndicated revolver expiring
in 2012 that it primarily uses as backup to its commercial paper program).
At December 31, 2010, OPC had approximately $672 million
of unrestricted cash on hand and approximately $1.01 billion
of undrawn capacity available under its bank lines, while the commercial
paper balance outstanding stood at approximately $306 million.
While specific details are not yet available, OPC has indicated
that it plans to restructure and upsize the amount of external liquidity
provided by its banks during 2011. Given that the company is steadily
advancing its large capital investment program, we would view achievement
of this objective to be a credit positive step.
OPC's capital spending in 2010 was approximately $670 million
(including interest during construction) when it reports its FY 2010 financial
statements; clearly a level that required significant external financing,
including the $450 million senior secured debt issued in November
2010. As Moody's understands it, OPC intends to continue
to use a combination of internal cash flows, public taxable debt
capital markets, and beginning in the first quarter of 2012,
potential advances under the DOE loan program, to help fund its
pro-rata obligations for the Vogtle construction. Moody's
assumes that up to 70% of Vogtle costs may be funded under the
DOE program. Given the recent nuclear incidents in Japan,
it is conceivable that the Nuclear Regulatory Commission may decide to
more carefully evaluate next generation reactor designs and their safety
and emergency response capabilities, especially in light of their
passive safety designs or in response to increased political pressures.
Material delays in receiving DOE loan proceeds, and delays in receipt
of the combined construction permit and operating license (COL),
would likely be viewed negatively.
The rating outlook is stable, reflecting our view that the current
rating level captures some of the potential risks to the company's current
financial profile, and our view that OPC's rate-setting flexibility
will need to be utilized more heavily going forward. However,
any future challenges to the Vogtle project including timing delays or
increased cost, could place stress on the rating and lead to a negative
outlook or review for possible downgrade.
Given the capital build-out expected, a near-term
upgrade is unlikely. However, to the extent Oglethorpe's
members are willing to support construction costs with additional equity
it would be viewed positively. Credit metrics that would support
an upgrade include sustained funds from operations to debt above 6%
and equity to capitalization approaching 20%.
The principal methodology used in this rating was U.S. Electric
Generation & Transmission Cooperatives published in December 2009.
Headquartered in Tucker, Georgia, Oglethorpe Power Corporation
is a generation-only electric cooperative owned by and supplying
power to its 39 distribution cooperative members (representing approximately
4.1 million people) in the state of Georgia. Oglethorpe
owns approximately 5,790 MW's of generating capacity and its 2010
revenues were approximately $1.3 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Kevin G. Rose
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
Chee Mee Hu
MD - Project Finance
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Baa1 rating to Oglethorpe Power's planned tax exempt financings
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