June 5, 2012 / 4:17 PM / 5 years ago

TEXT-Fitch rates Ind. Finance OVEC bonds 'BBB-'

 (The following statement was released by the rating agency)	
 June 5 - Fitch Ratings assigns a 'BBB-' rating to the following Indiana
Finance Authority Midwestern disaster relief revenue bonds, series 2012A (Ohio
Valley Electric Corporation Project):	
	
--$76,800,000 5% term bonds due June 1, 2032;	
--$123,200,000 5% term bonds due June 1, 2039.	
	
The bonds are senior unsecured obligations of Ohio Valley Electric Corporation
(OVEC) and OVEC is solely responsible for the debt service and repayment of the
bonds. The Rating Outlook is Stable.	
	
Funds will be used by OVEC to complete environmental upgrades at its Clifty
Creek Generating Station in Indiana.	
	
OVEC owns approximately 2,400 megawatts (MW) of coal-fired generation capacity
in Ohio and Indiana. OVEC is a sponsor owned generation company that sells
electricity to its sponsors under a long-term inter-company power agreement
(ICPA). The sponsors, comprised of investment grade utilities, captive
generation affiliates of utility holding companies, and power cooperatives, are
responsible to compensate OVEC for its operating and capital costs, including
debt service under the ICPA which extends until 2040.	
	
OVEC's ratings reflect the underlying performance obligations of its sponsors
under the ICPA.	
	
KEY RATING DRIVERS	
	
--The financial strength of OVEC's sponsors;	
--The contractual obligation of the sponsors under the ICPA to purchase power
and compensate OVEC for operating and capital costs;	
--Favorable generation cost profile--OVEC's plants are low in the dispatch
curve;	
--A $1.4 billion environmental upgrade program at its power plants is in its
final stages;	
--Extension of the ICPA to 2040 from 2026;	
--Uncertain or emerging environmental rules and regulations.	
	
As a low-cost power provider to its sponsors, OVEC's power prices are based on a
formula that includes all direct production costs as well as soft costs
including debt service. Consequently, OVEC does not bear market risks such as
pricing, volumetric, or commodity risks.	
	
Contractual performance by the sponsors is critical to OVEC's ratings. Fitch
rates, or considers all the sponsoring companies to be investment grade. Payment
by the sponsors to OVEC, in turn, are frequently recoverable from their
customers through the state utility regulatory mechanism under which sponsors
operate, effectively rate basing OVEC's assets.	
	
American Electric Power Co., Inc. (AEP; 'BBB' IDR, Stable Outlook) through
subsidiaries is the largest shareholder in OVEC with an approximately 43%
interest. AEP provides key managerial and operational support to OVEC including
coal procurement and transportation. Fitch considers AEP's role favorably in the
OVEC rating.	
	
OVEC is in the final stages of a $1.4 billion capital investment program at its
power plants consisting of environmental upgrades including installation of Flue
Gas Desulfurization units. Environmental upgrades at the Kyger Creek plant are
complete. OVEC expects Clifty Creek environmental upgrades to be complete and in
commercial service by the second quarter of 2013	
	
CREDIT CONCERNS	
	
--Uncertainty regarding environmental rules and regulations and timing and
implementation;	
--OVEC's plants began commercial operation in 1955 making them among the oldest
base load plants in service;	
--Higher operating costs from environmental compliance.	
	
Implementation of the Environmental Protection Agency's Cross States Air
Pollution Rule (CSAPR), originally scheduled for Jan. 1, 2012, has been delayed.
OVEC should be well positioned to meet the more stringent environmental rules,
when and if, they are implemented.	
	
The Stable Outlook reflects sufficient liquidity. OVEC extended the maturity of
its $275 million revolving line of credit to 2015. OVEC receives semi-monthly
payments from its sponsors for energy and demand charges which minimizes working
capital requirements. Additionally, the operating strength of OVEC's generating
assets lowers the unit cost of electricity and helps sponsors receive
electricity at a competitive price. OVEC's generating facilities are well placed
on the dispatch curve enhancing their capacity and utilization factors.	
	
OVEC is a generating company that is owned by 14 sponsoring companies. The
sponsors are severally responsible for OVEC's expenses including debt service.
The creditworthiness of the sponsors serves as the primary basis of OVEC's
ratings. OVEC is located in Ohio and owns 2,400MW of nameplate coal-fired
generation capacity.	
	
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.	
	
Applicable Criteria and Related Research:	
	
--'Corporate Rating Methodology' (Aug. 12, 2011);	
--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011);	
--'Recovery Ratings and Notching Criteria For Utilities' (May 3, 2012).	
	
Applicable Criteria and Related Research:	
Corporate Rating Methodology	
Parent and Subsidiary Rating Linkage	
Recovery Ratings and Notching Criteria for Utilities	
	
 (New York Ratings Team)	
 

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