Wednesday, January 13, 2010

Fitch Ratings

NEW YORK - (Business Wire) Fitch Ratings assigns an 'AA+' rating to the following Memphis Light, Gas and Water (MLGW) electric system revenue bonds:

--$141.94 million series 2010 electric system revenue refunding bonds

The bonds are expected to sell in January 2010 and are secured by MLGW's net
electric system revenues subordinate to the series 2002 senior lien bonds.

In addition, Fitch upgrades the following outstanding bonds to 'AA+' from 'AA':

--$11.490 million MLGW electric revenue (senior lien) refunding bonds, series 2002; and

--$1,028.52 million electric revenue bonds, series 2003A and refunding series 2008.

The Rating Outlook is Stable.


--The upgrade reflects MLGW's strong financial metrics, stable power resource base, manageable and internally funded capital plan, and relatively diversified customer mix.

--MLGW continues to increase its cash balances and maintain healthy days operating cash-on-hand, even though electric customer usage has moderately declined with the economic recession. The healthy liquidity combined with the rapidly amortizing debt over the past several years have well-positioned MLGW financially.

--MLGW benefits from the favorable terms of the electric prepay transaction with the Tennessee Valley Authority ('TVA'; rated 'AAA' by Fitch) which allowed MLGW to prepay for electric capacity and energy through 2018 and locked in a fixed monthly credit from TVA for the prepayment term.

--MLGW purchases all of its power supply from TVA. MLGW has contractual ability to pass any power costs from TVA automatically through to its customers, without the need for City Council approval.


--Ability to maintain strong financial and operational performance in-line with comparably rated electric distribution systems.


After the issuance, the 2010 bonds will be secured by a subordinate lien on net general revenues, on parity with the outstanding 2003A bonds and the 2008 bonds (subordinate to the $11.490 million electric revenue bonds, series 2002).


MLGW is owned by the City of Memphis and provides electric, gas and water utility services through three separate divisions. The electric division of MLGW owns and operates an electrical transmission and distribution system which served 427,541 customers in 2008 (down from 429,227 customers in 2007). The electric division purchases all of its electricity from TVA pursuant to a 1984 power contract.

In 2003, MLGW issued a series of bonds to fund a prepayment transaction with TVA. In exchange for the prepayment and a commitment by MLGW to purchase a specified minimum amount of electric power from TVA over the term of the supplemental power contract, TVA agreed to provide a lower cost specified supply of electricity to MLGW. TVA has established a credit to its wholesale power rates, which has resulted in approximately $13 million in annual savings to MLGW on their cost of power since 2003. As its largest customer, TVA in turn has secured MLGW as an electric distribution customer at least through 2018. The 928,671 KW prepaid capacity accounts for approximately 27% of MLGW's peak and 55% of MLGW's total energy needs on an annual basis.

The series 2010 bonds are being issued to advance refund a portion of the outstanding electric system subordinate revenue bonds, series 2003A and to pay the cost of issuance. The series 2010 bonds will be back-loaded into two maturities (2017 and 2018). However, when combined with outstanding subordinate debt, the combined debt service is still descending.

Applicable criteria available on Fitch's website.

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