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TEXT-Fitch affirms Guam Power Authority's 'BBB-', 'BB+' ratings
July 25, 2012 / 8:09 PM / 5 years ago

TEXT-Fitch affirms Guam Power Authority's 'BBB-', 'BB+' ratings

 (The following statement was released by the rating agency)
 July 25 - Fitch Ratings has affirmed the ratings on the following bonds
issued by the Guam Power Authority (GPA or the authority):

--$523.3 million senior revenue bonds at 'BBB-';
--$56.1 million subordinate revenue bonds at 'BB+'.

The Rating Outlook on all bonds is Stable

SECURITY

The senior revenue bonds are payable and secured by net revenues of the system.
The subordinate bonds are limited obligations of GPA secured by a lien on and
pledge of the net revenues, subject to the prior pledge of revenues securing the
senior bonds.

KEY RATING DRIVERS

SOLE PROVIDER ISLAND SYSTEM: GPA benefits from its position as the sole provider
of retail electricity to the 175,000 residents of the island of Guam, the
western-most territory of the U.S. The island economy is supported by the heavy
and increasing presence of the U.S. Navy, the system's largest customer (18.2%
of total revenue).

SUBJECT TO RATE REGULATION: GPA's electric rates are regulated by the local
Public Utility Commission (PUC), which limits the authority's financial
flexibility and may delay the timing or amount of rate increases necessary to
meet operating costs. Recent base rate increases, fuel cost recoveries, and
changes to GPA's rate structure are viewed favorably by Fitch.

WEAK LIQUIDITY: GPA's working capital fund is exposed to fluctuations in fuel
prices and a levelized energy cost recovery mechanism that does not guarantee
timely recovery of fuel related costs.

NO FUEL DIVERSITY: Generation resources on Guam are 100% fuel-oil based which
exposes GPA to market price volatility. GPA is finalizing an updated integrated
resource plan (IRP) that is expected to address fuel diversity and the potential
of adding renewable sources to the resource mix. However, progress toward
diversification is expected to be slow.

ECONOMY TIED TO TOURISM: The Guam economy is heavily influenced by tourism and
has been negatively affected by the global economic slowdown and the March 2011
earthquake and tsunami in Japan. Civilian visitors declined 2.3% in fiscal 2011,
but fiscal 2012 visitors through March are 6.2% higher.

WHAT COULD TRIGGER A RATING ACTION

RESTRICITIVE RATE REGULATION: Future regulatory decisions that prevent the
authority from adequately recovering costs would likely result in downward
pressure on the rating or Outlook.

LIQUIDITY POSITION: GPA's ability to maintain access to sufficient liquidity and
achieve greater financial stability will be critical factors in any decision to
consider any rating action, upward or downward.

CREDIT PROFILE

GPA is the sole provider of retail electricity service to the island of Guam,
located in the Pacific Ocean, 3,800 miles southwest of Hawaii. GPA's current
governance structure, which has been in place since 2003, has proven to be
effective and has helped to dismiss past political risk associated with rate
increases and other system approvals. While the Consolidated Commission on
Utilities, a five member board which governs GPA, has been effective, there
still remains some political risk given the island's economy and rate payer's
sensitivity to rising electric rates as fuel costs increase.

WEAK BUT STABLE LIQUIDITY

GPA's rating reflects its weak financial metrics and debt service coverage
history, which includes both bond debt service as well as capital lease
principal and interest payments. Additionally, liquidity is minimal and given
GPA's exposure to volatile fuel prices and a limited fuel cost adjustment
mechanism, the utility has difficulty building and maintaining reserves. Cash on
hand at fiscal year end, Sept. 30, 2011, was modestly lower than the prior year
at $27.4 million (30 days cash). Building and maintaining stronger liquidity is
key to maintaining the ratings at their current level.

RATE INCREASE APPROVED

The PUC recently approved GPA's five-year rate plan that included a 6% increase
in base rates ($9.1 million) and the implementation of a working capital
surcharge adjustment and demand charge effective May 2012, which is favorable.
The approved increase was lower than GPA's request (10.7%) over the period, but
is positive nonetheless.

OVERDUE GOVERNMENT RECEIVABLES HAVE DECLINED

Long-term receivables have declined to $4.7 million (or $1.8 million when
factoring in current portion due in fiscal 2012). The customer with the largest
balance is Guam Department of Education (GDE) with an outstanding balance of
$4.1 million as of Sept. 30, 2011. GDE is on a payment schedule with GPA of
approximately $200,000 per month with 4.47% annual interest and is expected to
make the final payment in July 2013. GPA has benefited from a more favorable
government who has worked with agencies in getting them to pay their bills as
well as what was owed from previous years.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's
Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this
action was informed by information from CreditScope.

Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'U.S. Public Power Rating Criteria' (Jan. 11, 2012).

Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria

 (New York Ratings Team)
 

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