Fitch Ratings – New York – 26 Aug 2024: Fitch Ratings has affirmed the following Kentucky Municipal Energy Agency’s (KYMEA) ratings at ‘A’:
–All-requirements project obligations;
–Issuer Default Rating (IDR).
The rating outlook is stable.
VIEW ADDITIONAL RATING DETAILS
The ‘A’ ratings reflect Fitch’s assessment of KYMEA’s evolving composition and business strategy, as well as the credit quality of the agency’s broad pool of purchasers. While Fitch’s historical analysis has primarily focused on the credit quality of the agency’s largest purchaser — the Electric and Water Plant Board of the city of Frankfort, KY (FPB) — given KYMEA’s limited operating history, the analysis now factors the agency’s financial performance and assessment of the KYMEA’s other large members more heavily.
KYMEA continues to exhibit very strong revenue defensibility, supported by the revenue framework afforded by the long-term, take-and-pay power sales contracts (PSCs) signed with its all-requirements members, and the rate setting requirements pursuant to the contracts that provide for an unlimited reallocation of costs in case of member default. Revenue defensibility also considers the strong purchaser credit quality of the agency’s five largest members, as evidenced by a purchaser credit index (PCI) of 1.9.
The rating also factors the agency’s strong operating risk profile, evidenced by a diverse mix of power supply agreements with various counterparties, and a low operating cost burden. The agency’s very low leverage ratio, strong financial profile and neutral liquidity profile remain unchanged.
While the agency currently has no long-term debt outstanding, its capital plan includes construction and acquisition of new gas-fired generation totaling 75MWs over the next few years. The cost of construction is expected to be roughly $130 million, which the agency will finance with long-term debt. The project is expected to be available and online by 2027, and bonds could be issued as soon as later this calendar year (fiscal 2025). The issuance of debt is likely to result higher leverage over the near term, but levels should remain consistent with the ‘A’ rating.
For more information, read the full report here.