TEXT-Moody's release on Arkansas Electric Coop Corp

(The following statement was released by the ratings agency)

Aug 5 - Moody's Investors Service affirmed the A2 secured facility lease bond rating and stable rating outlook of Arkansas Electric Cooperative Corporation (AECC) and assigned a Prime-1 short-term rating to its newly created $210.5 million 4(2) commercial paper program.

The assignment of the Prime-1 short-term rating reflects AECC's proactive approach to maintaining sufficient internal and external liquidity and the cooperative's sound overall credit quality as evidenced by its A2 rating for the secured facility lease bonds outstanding. Moody's notes that the A2 rating of AECC's secured facility lease bonds takes into account the junior ranking relative to AECC's other secured debt under its mortgage indenture. The rating also reflects AECC's financial and operating profiles. "In terms of its financial profile, AECC distinguishes itself from most of its peers in the generation and transmission cooperative (G&T co-op) universe by virtue of having a considerably high equity to capital ratio", said Moody's Vice President and Senior Analyst, Kevin Rose. "AECC also fairs reasonably well within the G&T co-op rated universe with respect to the ratio of its funds from operations to interest and debt", Rose added.

AECC's wholesale power rates charged to members are very competitive among its peers in the rated universe of G&T co-ops and throughout the U.S. power sector in general. This competitive position stems from the historically efficient operations of its owned generation fleet, especially the base load coal-fired resources. However, the current rate position could change in the medium to long-term as the cooperative deals with increased demands for power from its members and the corresponding costs associated with potentially higher purchased power pending construction of new generation capacity contemplated in the cooperative's strategic planning process.

The rating also incorporates the fact that AECC (unlike most G&T co-ops) is subject to rate regulation. Accordingly, there is an element of regulatory risk that must be considered when assessing the credit quality of AECC, which does not exist for most of its peers in the rated co-op universe. Importantly, AECC maintains a transparent relationship with the Arkansas Public Service Commission (APSC), which has resulted in generally supportive treatment by the APSC during the rate setting process over the years, including timely and adequate cost recovery for AECC.

Moody's notes that AECC's liquidity profile includes a recently arranged committed $210.5 million revolving bank agreement led by National Rural Utilities Cooperative Finance Corporation (CFC). The facility supplements AECC's cash flow from operations and several other smaller sized bank facilities that have been in place for many years. We expect that AECC will specifically rely upon the $210.5 million committed revolver syndicated through CFC to ensure that it maintains sufficient alternate liquidity for the commercial paper program. Moody's considers the alternate liquidity provided by the $210.5 million facility to be of generally good quality since it is a committed facility, has a three-year term, and no ongoing material adverse change clause or onerous financial covenants.

Arkansas Electric Cooperative Corporation is a non-profit electric generation and transmission cooperative, which provides wholesale electric power sales to its 17 member rural electric distribution cooperative systems who are its owners. Its headquarters are in Little Rock, Arkansas. (New York Ratings Team)