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HomeNewsArchivesInvestor Service Upgrades WAPA Revenue Bonds

Investor Service Upgrades WAPA Revenue Bonds

May 25, 2007 — The V.I. Water and Power Authority’s revenue bond rating by Moody’s Investors Service climbed from Baa3 to Baa2 thanks to “a stable outlook” for the utility, according to a WAPA news release.
“We couldn’t be more pleased,” said Nellon Bowry, WAPA’s chief financial officer. "This is wonderful news as we prepare to go to the bond market to finance some important capital-improvement projects.” WAPA plans a $99.9 million bond offering in early June to finance several major projects, including a waste-heat recovery boiler for St. Croix and the Long Bay substation on St. Thomas.
Moody’s has assigned the higher rating to the electric system senior revenue-refunding bonds, Series 2007A in the amount of $15,370,000, and electric system revenue-refunding bonds, series 2008A in the amount of $26,025,000, according to Bowry.
The higher rating for the refunded bonds means that a lower interest rate will be applied to repay bonds originally issued in 1998, the news release said. The triple tax-exempt bonds, which will be underwritten by Citigroup, will carry lower interest costs than taxable-vendor financing.
The Electric System Subordinated Revenue Bonds, series 2007A in the amount of $58,515,000 will have a Baa3 rating. The subordinate-lien bond rating reflects the subordinate-lien position of the bonds, the weaker rate covenant and debt-service reserve requirements, the news release said.
In WAPA’s financing plan recently approved by the Public Services Commission and WAPA’s governing board, money from the subordinate bonds will be used as follows: $24.1 million for the waste heat-recovery boiler on St. Croix; $18 million for several St. Thomas capital projects, including the new Long Bay Substation; $10 million to repay an existing line of credit used for capital projects; and $6.4 million to support capitalized interest, fund the debt-service reserve and cover the administrative costs of securing the bonds.
Moody’s has also upgraded the rating to Baa2 from Baa3 on WAPA’s outstanding $69,960,000 senior lien electric-system revenue bonds, issued in 2003, the news release said. The credit rating upgrade on the senior lien bonds takes into consideration WAPA’s continued maintenance of the 1.75 times debt-service coverage target, despite significant fuel-cost increases; the recent assignment by Moody’s of the Baa3 rating on the general-obligation bonds of the V.I. government; WAPA’s continued focus on managing the longstanding accounts-receivable problem; and improvements to system reliability.
Moody cited recent developments in WAPA’s financial picture as a positive influence on the upgrade in WAPA’s bond rating. Moody’s noted WAPA’s fuel-hedging program implemented to help stabilize fuel costs and the average $1.10 monthly surcharge approved by the Public Services Commission recently to cover debt service on the series 2007A subordinate bonds associated with St. Croix’s new boiler as contributing to the stable outlook. The surcharge will be implemented in November 2008, once the boiler is operational.
Alberto Bruno-Vega, WAPA’s executive director, expressed pleasure that the news came prior to his departure on May 31, the news release said. The loan will help support WAPA’s aggressive five-year capital improvement plan, which totals $179 million, he said.
“I am leaving WAPA on a very high note,” he said. According to Bruno-Vega, WAPA’s financing plan will permit the utility to complete the installation of the boiler, which he regards as WAPA’s top priority. When the boiler goes on line, it is expected to save WAPA and its customers $10 million annually, he said, according to the news release.
While WAPA is optimistic about the future, the utility must acknowledge the challenges ahead as stipulated by Moody’s, including a lack of fuel diversity, which exposes WAPA to oil-market volatility; a large energy-reserve margin requirement because of the island-service area; weak internal liquidity; a large low-income population, which contributes to a recurring receivable program experienced during adverse economic cycles or when fuel prices rise; and hurricane impacts on the electrical system plant and WAPA’s revenues, Bowry said.
WAPA’s bond rating could be upgraded should WAPA strengthen its cash flow and develop a more diverse resource mix less vulnerable to price swings, as is the case in the oil market. The rating could be lowered if WAPA’s financial position weakens because of a rise in government receivables or unrecovered fuel costs, or if a hurricane impacts economic activity without satisfactory federal assistance or regulatory treatment, the news release said.

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