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Global Credit Research - 15 Nov 2010
Approximately $30 million of securities affected
New York, November 15, 2010 -- Moody's Investors Service assigned a Baa1 senior secured rating to a proposed
offering of $30 million of Vermont Economic Development Authority
(VEDA) Recovery Zone Facility Bonds (Central Vermont Public Service Corporation
Issue -- Series 2010) to be issued on behalf of Central Vermont Public
Service Corporation (CVPS). Concurrently, Moody's affirmed
all of CVPS' other ratings (see list below) and its stable rating
Ratings affirmed include:
Issuer Rating at Baa3
8.91% Series JJ First Mortgage Bonds due 12/15/2031 at Baa1
6.9% Series OO First Mortgage Bonds due 12/15/2023 at Baa1
5.0% Series SS First Mortgage Bonds due 6/15/2011 at Baa1
5.72% Series TT First Mortgage Bonds due 6/15/2019 at Baa1
6.83% Series UU First Mortgage Bonds due 5/15/2028 at Baa1
Preferred Stock at Ba2
The Baa1 rating assigned is consistent with the Baa1 rating for CVPS'
currently outstanding first mortgage bonds (FMBs) and takes into account
that the obligation of CVPS to provide funds for repayment of the VEDA
bonds will be senior secured and rank pari-passu with CVPS'
other senior secured debt outstanding under its FMB indenture.
Under the FMB indenture, investors benefit from a first mortgage
lien on substantially all of CVPS' utility property and plant as
defined and hold a superior priority of claim position versus CVPS'
senior unsecured creditors.
The rating assignment and affirmations take into account CVPS' primarily
regulated business and operating risks; the utility's regionally
competitive power supply portfolio; and the strength of its financial
profile, including liquidity supported by a committed revolver.
The rating also reflects the degree of regulatory support provided by
the Vermont Public Service Board (VPSB). "The collaborative working
relationships among the Vermont Department of Public Service (i.e.,
the consumer advocate), the VPSB and CVPS in recent years continues
to carry significant weighting in our assessment of CVPS' creditworthiness",
said Kevin Rose, lead analyst for CVPS at Moody's New York
office. "In particular, the three-year Alternative
Regulation Plan (ARP) approved in 2008, has been an effective means
to improve the certainty and timeliness of the company's cost recovery",
Mr. Rose adds.
CVPS maintained a sound financial profile over the 2007 -2009 period,
with CFO pre-w/c to interest and debt metrics averaging around
4.1x and 18.4%, respectively. Our ratings
for CVPS assume that the company will be challenged to sustain its key
metrics at these levels as its negative free cash flow will require debt
financing for a portion of its significantly higher capital expenditure
program over the next five years, including upgrades and maintenance
of existing infrastructure and acquisition of the Vermont Marble Power
division utility assets of Omya, Inc., as well as additional
equity investments in Vermont Electric Power Company, Inc./Vermont
Transco LLC, which owns the high voltage transmission system in
Vermont. Nevertheless, key metrics for CVPS should still
remain within the Baa-rating category, according to Moody's
Regulated Electric and Gas Utilities Rating Methodology published in August
Key credit issues going forward include the current lack of support in
the state for extending the operating license for the Vermont Yankee (VY)
nuclear power plant and the need for CVPS to extend and/or replace the
significant power supply contracts it has in place with the current owners
of VY and Hydro Quebec (i.e., CVPS currently derives
the substantial majority of its power needs from these two sources).
A new energy agreement which CVPS and other utilities in Vermont entered
into with a subsidiary of Hydro Quebec would partially address this challenge,
and the purchase power agreement is awaiting VPSB approval. Moreover,
we consider the ARP approach to ratemaking to be credit positive to date,
so extension of this approach in a similarly supportive form beyond 2011,
as requested in a pending filing with the VPSB, will also have a
bearing on the future credit quality of CVPS. Absent approval of
this request, the current ARP would continue at least through the
end of 2011.
CVPS' stable rating outlook reflects our expectation that the company
will continue its focus on conservative financing of core utility investments,
that the ARP will continue to provide for timely recovery of costs and
that the VPSB will continue to be supportive to the overall credit quality
of the company.
Upward momentum for the ratings of CVPS appears limited in the near term,
given the company's plans for debt financing of at least a portion of
the significant planned capital investment.
Downward rating pressure for CVPS would develop in the following circumstances:
degradation of credit metrics to levels below 2.7x for CFO Pre-W/C
+ interest to interest and 13% for CFO Pre-W/C to debt;
unfavorable treatment in future rate cases by the VPSB; a negative
liquidity event; and/or difficulties renewing power purchase agreements
or doing so at a much higher cost than assumed in projections.
The principal methodology used in rating CVPS was Regulated Electric &
Gas Utilities rating methodology published in August 2009. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
Central Vermont Public Service Corporation is Vermont's largest vertically
integrated electric utility, serving approximately 159,000
customers. The company is headquartered in Rutland, Vermont.
Kevin G. Rose
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Baa1 to Vermont Economic Development Authority Bonds issued on behalf of Central Vermont Public Service
250 Greenwich Street
New York, NY 10007
No Related Data.
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