Powering Strong Communities

Fitch Assigns “AA” Rating to Bonds Issued by SMUD

Fitch Ratings has assigned a “AA” rating to bonds issued by California public power utility SMUD.

The bonds are:

  • Approximately $200.0 million electric revenue bonds, 2023 series K (senior lien);
  • Approximately $62.7 million electric refunding revenue bonds, 2023 series L (senior lien);
  • Approximately $100.0 million subordinated electric revenue refunding bond, 2023 series D;
  • Approximately $132.0 million subordinated electric revenue refunding bonds, 2023 series C (variable rate demand bonds);
  • Bank bond rating on the 2023 series C bonds.

Bond proceeds will refund outstanding 2013A&B bonds and 2019A bonds, refinance commercial paper into long-term debt, fund a potential termination payment, and pay issuance costs.

Fitch also affirmed the following SMUD obligations at “AA”:

  • $1.87 billion electric revenue bonds (senior lien; amount prior to refunding);
  • $200 million electric revenue bonds, series 2019A and series 2019B (subordinate lien; amount prior to refunding);
  • Bank bonds corresponding to CP Notes, Series L-1, L-2, M-1 and M-2;
  • Issuer Default Rating (IDR).

In addition, Fitch affirmed at 'AA' the following SMUD obligation issued by joint powers agencies: $89.7 million revenue refunding bonds, series 2015, issued by the Sacramento Municipal Utility District Financing Authority.

The Rating Outlook on all bonds is Stable.

“The “AA” rating reflects SMUD's very strong and stable financial profile in the context of its 'aa' revenue defensibility assessment and 'a' operating risk assessment,” Fitch said.

“The 'aa' financial profile is expected to persist over the medium term, with leverage, calculated as net adjusted debt to adjusted funds available for debt service, remaining between 5x and 6x and supportive of the rating.”

Higher than anticipated costs resulting from the implementation of SMUD's ambitious 2030 Zero Carbon Plan, adopted in April 2021, could occur as energy purchases from clean technology increase, the rating agency said.

“However, Fitch anticipates that costs will be recovered in a timely manner to preserve the utility's financial profile, or the target date delayed if costs are significantly higher than anticipated, given SMUD's focus on affordability and reliability to guide the pursuit of its 2030 goal.”

SMUD estimates that 66% of its power supply will be carbon-free in 2023, with the balance provided by natural gas. “SMUD's five natural gas-fired power plants remain an important source of capacity and flexibility. Strategies to replace or repower these plants with renewable energy and storage alternatives are under development,” Fitch said.