TEXT-S&P raises Grey Forest, Texas gas revs to 'A-'

(The following statement was released by the ratings agency)

Dec 22 - Standard & Poor's Ratings Services raised its underlying rating (SPUR) on Grey Forest, Texas' gas utility system revenue bonds to 'A-' from 'BBB+' based on the system's continued maintenance of strong operating margins leading to strong debt service coverage (DSC), coupled with ongoing economic and customer base expansion. The outlook is stable.

A first-lien net revenue pledge of the city's gas utility distribution system secures the bonds. A debt service reserve fund in the amount of average annual debt service provides additional liquidity.

Grey Forest is a suburban bedroom community, 15 miles northwest of downtown San Antonio, Texas. Grey Forest Utilities, the city's utility, which provides gas service to more than 9,700 customers, has experienced healthy growth; its customer base grew by an average of more than 4% annually over the past decade.

Although military and tourism have long been the county economy's anchors, medical and biomedical companies are now the leading force, contributing an estimated $11.9 billion to the area economy. In addition, in late 2006 the Toyota Motor Corp. opened a new truck manufacturing facility in San Antonio, bringing nearly 2,100 new jobs to the area. The company also invested nearly $1.3 billion million into the project, which has brought substantial growth to the southern San Antonio metropolitan statistical area (MSA).

The system's financial position is sound. Although unrestricted system liquidity is low, a $1.8 million line of credit for gas purchases boosts short-term liquidity. Utility officials target the maintenance of liquidity equivalent to 15% of operating expenses between cash on hand and the line of credit. Operating margins remain very strong; annual debt service coverage is historically at, or more than 6x, which has precluded the need for any base rate increase since 1991. The system makes annual transfers into the city's general fund; transfers, however, are currently capped at a base amount of $450,000 plus a 5% annual increase by agreement with the city and are subordinate to debt service. (New York Ratings Team)