Fitch Ratings has revised the rating outlook on Provo City, Utah, to positive from stable and affirmed the "AA-" ratings on bonds issued by Provo City on behalf of the electric utility system Provo Power.
The bonds in question are $14.9 million energy system revenue bonds, series 2015A.
In addition, Fitch has assessed a standalone credit profile (SCP) of 'aa-'. The SCP represents the credit quality of the electric system on a standalone basis, irrespective of its relationship with and the credit quality of the city of Provo.
Fitch said the positive outlook reflects the electric system's improved financial profile and Fitch's expectation that deleveraging will continue through 2026, beyond levels previously anticipated by Fitch.
Leverage, as measured by net adjusted debt to adjusted funds available for debt service was 5.1x in 2021, an improvement over the prior year's 5.5x. The fluctuation in leverage over the past two years was primarily the result of the impact of COVID-19 on electrical demand at the onset of the pandemic in 2020, followed by recovery in 2021, Fitch said.
Leverage was additionally impacted in 2021 by a spike in the Fitch-adjusted net pension liability. Going forward, leverage ratios are expected to trend below 5.0x by 2024, provided consistent rate increases are implemented to support the electric system's ongoing capital needs.
The rating also reflects Provo Power's “very strong revenue defensibility, supported by a growing and economically sound service area and the electric system's independent legal ability to adjust rates that are highly affordable,” the rating agency said.
Moreover, the electric system's very low operating risk reflects the all-requirements power sales agreement with the Utah Municipal Power Agency that provides the electric system with a competitively priced and diverse source of power, Fitch said.