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Rating Action:

Moody's upgrades Tri-State G&T Association to A3 for senior secured debt; outlook stable

09 Nov 2010

Approximately $1.5 billion of securities affected

New York, November 09, 2010 -- Moody's Investors Service upgraded the ratings of Tri-State Generation & Transmission Association, Inc. (Tri-State), including the cooperative's senior secured debt to A3 from Baa1. This action concludes the review for upgrade of Tri-State's ratings, which was initiated on August 5, 2010. The rating outlook is stable.

See ratings upgraded below.

Upgrades:

..Issuer: Gallup (City of) NM

....Senior Secured Revenue Bonds, Upgraded to A3 from Baa1

..Issuer: Tri-State G&T Association Inc.

....Issuer Rating, Upgraded to Baa1 from Baa2

....Senior Secured Bank Credit Facility, Upgraded to A3 from Baa1

....Senior Secured First Mortgage Bonds, Upgraded to A3 from Baa1

....Senior Secured Pass-Through, Upgraded to Baa1 from Baa2

Outlook Actions:

..Issuer: Tri-State G&T Association Inc.

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

"Today's rating action reflects Moody's view that Tri-State's future rate setting plans and long-term financial objectives will allow the cooperative to maintain key financial metrics on average at levels consistent with the higher rating, especially considering its more manageable planned capital program compared to earlier expectations" said Kevin Rose, lead analyst for Tri-State at Moody's New York office. "By taking steps to delay previously planned large generation projects and shoring up its liquidity through recently completed long-term financings, Tri-State has addressed two issues which were previously acting as a ratings constraint" Rose added.

Management's financial policy objective takes advantage of the cooperative's rate setting autonomy to establish wholesale power rates annually to achieve operating margins equal to 3% of total electric service costs which allows the company to exceed the minimum required debt service ratio in its indenture. By following this strategy, Moody's expects that Tri-State can prospectively maintain its three-year average funds from operations (FFO) to interest and debt metrics in excess of 6% and 2.0x, respectively, which is typical of cooperatives at the low end of the A rating category according to Moody's rating methodology for U.S. Electric Generation & Transmission Cooperatives.

For the second consecutive year, Tri-State has substantially reduced its five-year capital spending budget and now expects to spend about $1.1 billion over 2010 -- 2014, which is well less than half of the amount previously anticipated over this period. Against the backdrop of reduced capital expenditures, our prior concerns about persistent need for often sizable annual rate increases and substantial external financing have subsided. As a result, Tri-State's more manageable financing plans should ensure continued progress in fostering equity growth in support of its solid investment grade rating.

Moody's expects that Tri-State will maintain ample liquidity going forward, including various bank arrangements aggregating $350 million to supplement cash flow from operations. Moreover, Tri-State used approximately $400 million of proceeds from bond offerings earlier this year to deposit funds with the Rural Utilities Service (RUS) cushion of credit program, under which funds are restricted solely for repayment of obligations under the RUS loan program. Tri-State also has over $300 million of approved but undrawn RUS loan commitment amounts which it can call upon to help meet any other near term calls on cash.

Tri-State's stable rating outlook reflects our view that the cooperative can sustain its currently sound financial profile and ample liquidity resources.

We do not expect upward pressure on Tri-State's ratings in the near term given the stable outlook; however, in the medium to long term, the rating or outlook could benefit from stronger than anticipated financial performance, particularly if this results in FFO to interest and debt near 2.4x and 9%, respectively, for a sustained period of time.

A downgrade is unlikely in the near term given the current upgrade; however, Tri-State could become subject to a rating downgrade in the long term if several of the following factors were to occur in combination: substantial problems in addressing medium to longer term supply needs; weaker financial performance, including a FFO to debt ratio that is consistently well below 6% and a equity to total capitalization below 20% for an extended period of time; a continuing need for large rate increases that eliminate the vast majority of Tri-State's remaining competitive advantages; and weak demand growth that causes Tri-State to become excessively reliant on open market sales.

The principal methodology used in this rating was U.S. Electric Generation & Transmission Cooperatives published in December 2009.

Tri-State Generation & Transmission Association, Inc., with headquarters in Westminster, Colorado, is a not-for-profit electric generation and transmission cooperative, which provides wholesale electric power sales to its 44 members who are its owners in Colorado, Wyoming, Nebraska, and New Mexico.

REGULATORY DISCLOSURES

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 Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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New York
Kevin G. Rose
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's upgrades Tri-State G&T Association to A3 for senior secured debt; outlook stable
No Related Data.
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