Fitch upgrades Great River Energy to A- (Stable Outlook)
NEW YORK - June 23, 2006 - Fitch upgrades Great River Energy's (GRE) implied senior secured rating to 'A-' from 'BBB+'. The rating outlook is Stable. GRE has approximately $1.2 billion of outstanding debt.
GRE's rating upgrade reflects improved operating results and Fitch's increased comfort over time with the stability, performance, and level of management risk associated with Split Rock Energy (SRE), GRE's power trading subsidiary. Fitch also notes GRE's favorable position within MISO as a result of the location and diversity of its generating resources and its ownership in regional transmission assets. Additionally, GRE has further benefited from the asset optimization and risk management expertise at SRE.
The primary underpinnings for the rating include:
Additional support for the rating is provided by strong sales growth (4.6% CAGR over the last five years), the financial strength of the member cooperatives, and a favorable member revenue base comprised of residential (67.3%) and commercial / irrigation (32.7%).
Credit concerns include a large capital plan to primarily fund new generation capacity ($3.5 billion through 2016) and the projected rise in wholesale rates from 4.5 cents / kWh currently to over 7.0 cents / kWh in 2016. It should be noted that GRE's wholesale rates have generally been approximately 10% below those of other regional providers and Fitch expects that given the great need for additional capacity in the upper Midwest, other regional providers will see their rates rise as well.
Debt service coverage (DSC) as calculated by Fitch (which excludes margins from SRE) was 1.10 times (x) in 2005, an improvement from the 0.95 to 1.08x range of 2001 - 2004. Management expects to budget DSC of 1.10x going forward. Liquidity of 19 days cash on hand is supplemented by available lines of credit, providing a total available liquidity as of Dec. 31, 2005 of 48 days of operations. Fitch is comfortable with liquidity levels and GRE's use of its automatic monthly power cost adjustment clause, which provides sufficient mitigation of potential cost volatility at the 'A-' rating level.
GRE is a generating and transmission cooperative providing wholesale electric energy and related services to 28 member distribution cooperatives, serving over 614,000 customers. GRE is the fourth largest G&T cooperative in the United States and is the second largest wholesale power provider in Minnesota. GRE had total revenue of $691 million and total energy sales of 11,150,000 Mwh in 2005.
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