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I AGREE
31 Mar 2015
Approximately $250 million of debt affected
New York, March 31, 2015 -- Moody's Investors Service affirmed the ratings for Virgin Islands Water
and Power Authority (VI WAPA or the Authority) including its approximately
$140 million senior revenue bonds at Baa3 and approximately $110
million of subordinate revenue bonds at Ba1. Concurrent with the
rating affirmation, the outlook was revised to stable from negative
reflecting improvements in the utility's financial position and the near
completion of its fuel conversion program.
SUMMARY RATING RATIONALE
The ratings for VI WAPA reflect the challenges of operating within an
island economy with relatively sluggish growth, high unemployment
and low economic diversity. The ratings consider the historically
slow payment patterns of VI WAPA's government customers and the fact that,
unlike the majority of publically owned electric utilities in the US,
VI WAPA's rates are subject to approval by the Virgin Islands Public Service
Commission (PSC). The rating recognizes the regulatory support
the utility has received as it has progressed toward the near completion
of a project to convert its base-load generation resources from
oil-fueled to tri-fueled (initially propane), thereby
lowering the cost of electricity for Virgin Islands ratepayers while reducing
its deferred fuel balances and associated debt burden. Additionally,
the rating acknowledges the slow but steady financial improvement that
has occurred over the past several years from a liquidity, leverage,
and coverage standpoint.
OUTLOOK
The stable outlook assumes the progress VI WAPA has made in diversifying
its fuel sources and lowering the cost of electricity for Virgin Islands
ratepayers will continue to bear fruit and that the cost recovery and
surcharge mechanisms approved by the PSC will support relatively stable
cash flow metrics that are appropriate for the rating.
WHAT COULD MAKE THE RATING GO UP
• To the extent there were to be, improving economic conditions
in the islands manifesting in increased revenues and lower receivables
balances;
• A reduction or elimination of deferred fuel balances such that
cash flow coverage of total debt service remains above 1.15x;
and
• Days cash on hand remains above 30, there could be upward
pressure on the rating.
WHAT COULD MAKE THE RATING GO DOWN
• An economic downturn that inhibits VI WAPA's ability to recover
its cost of service through rates;
• Regulatory decisions that are not credit supportive;
• Cash flow coverage of total debt service remaining below 1.0x;
• Days cash on hand falling below 20;
• and an inability to extend or replace revolving credit capacity
could put downward pressure on the rating.
OBLIGOR PROFILE
VI WAPA was created in 1964 as an instrumentality of the Government of
the U.S Virgin Islands. Its electric system is a monopoly
provider of electric service to nearly 55,000 customers on St.
Thomas, St. Croix, St. John, Water Island
and Hassel Island. Its water system, although not a virtual
monopoly provider, provides water service to more than 12,000
customers. Unlike the majority of publicly owned entities,
the rates of both the electric and water systems are regulated by the
PSC.
LEGAL SECURITY
VI WAPA's senior lien bonds are secured by the pledge on the net revenues
of the power utility (water revenues are not pledged) with a rate covenant
of 1.25 times and a three-pronged debt service reserve fund
requirement equal to the lesser of 10% of aggregate bond proceeds,
maximum aggregate annual debt service or 125% average aggregate
annual debt service. The subordinate lien bonds have a subordinate
lien on net revenues, a similar three-pronged debt service
reserve fund requirement and a rate covenant and additional bonds test
of 1.15 times maximum aggregate senior and subordinate bond debt
service. Both debt service reserves are fully cash funded.
VI WAPA must also maintain at least 1.0 times its aggregate combined
debt service in each fiscal year.
USE OF PROCEEDS
Not applicable, this report covers existing debt.
RATING METHODOLOGY
The principal methodology used in this rating was U.S. Public
Power Electric Utilities with Generation Ownership Exposure published
in November 2011. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
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Laura J.K. Schumacher
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Chee Mee Hu
MD - Project Finance
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's revises Virgin Islands Water and Power Authority outlook to stable; affirms ratings including senior lien at Baa3
No Related Data.
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