Fitch Ratings has upgraded American Municipal Power Meldahl Hydroelectric Project bonds to “A” from “A-,” the rating agency said on April 10.
Specifically, the rating upgrade applies to approximately $610 million outstanding project revenue bonds, series 2010B, 2010C, 2010E, and 2016A.
The Rating Outlook is Stable.
The upgrade to 'A' reflects the credit quality of the project participants, whose payments cover operating expenses and debt service on the AMP Meldahl bonds. The upgrade is also supported by the improved credit quality of Hamilton, OH's electric system, which holds a 51.4% entitlement share in the project.
Project participant payments are made under a long-term, take-or-pay power sales contract (PSC) with AMP. The PSC includes a large 106% step-up provision. Obligations are absolute, unconditional and paid ahead of each participant's own direct debt service. Fitch's assessment of purchaser credit quality (PCQ) is based on a review of the largest participants and a pooled rating approach.
“The project's strong revenue defensibility reflects the strong contractual framework provided by the long-term, take-or-pay PSC signed with the 48 Meldahl project participants,” Fitch said.
It noted that the contract provides for full and unconditional recovery of all project costs but includes a limited reallocation of costs in case of a participant default. The large step-up provision of 106% results in no direct bondholder exposure to any potential non-payment by a single project participant.
The assessment also reflects the improved credit quality of the largest purchaser, the city of Hamilton, Ohio’s electric system, which comprises over 51% of the project's entitlement share.
Fitch's strong assessment of the PCQ includes assessments of the largest project participants, it said.
The low operating risk assessment is driven by the project's low operating cost burden, which has ranged between 5.9 cents/kWh and 9.4 cents/kWh since 2018. With limited capital needs, given Meldahl's relatively young age (commercial operation in 2016), and a solid track record of project operations, Fitch expects operating costs will remain low for the foreseeable future, and capital spending requirements will be limited.
Meldahl is a 108.8 MW run-of-the-river hydroelectric generating facility constructed on the Captain Anthony Meldahl Locks and Dam, operated by the Army Corps of Engineers.
