Fitch Ratings recently affirmed Kentucky Municipal Energy Agency's (KYMEA) ratings at “A” for all-requirements project obligations and an issuer default rating. The rating outlook is stable.
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,” it said on Aug. 26.
Fitch said that while its 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. --
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,” Fitch said.
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, it added.
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,” Fitch said.
While the agency currently has no long-term debt outstanding, its capital plan includes construction and acquisition of new gas-fired generation totaling 75 megawatts over the next few years, Fitch said. The cost of construction is expected to be roughly $130 million, which the agency will finance with long-term debt, the rating agency said.
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), Fitch said.
“The issuance of debt is likely to result higher leverage over the near term, but levels should remain consistent with the 'A' rating,” Fitch said.
"Fitch's reaffirmation is due to our members' balanced focus on competitive rates and strong financial metrics as outlined in KYMEA's 2019 Strategic Plan,” said Doug Buresh, President and CEO of KYMEA. “Our members have demonstrated strong business acumen in their approach. This is a positive development for our agency."
Created in September 2015, 11 municipal electric utilities entered into an Interlocal Cooperation Agreement creating KYMEA, a joint public agency.
