Standard & Poor’s this week raised its underlying rating on Johnson City’s prior-lien electric system revenue bonds to AA-minus from A-plus and assigned the new rating to an upcoming $28 million bond deal. The outlook is stable.
Analysts said that the upgrade reflects the municipal utility’s role as a take-and-pay wholesale power customer of the Tennessee Valley Authority, which greatly reduces operating risk given the strength of TVA’s generation and transmission operations. The utility also has a strong history of debt service coverage levels, a fully funded capital program following this issuance, and a stable regional economic base in the service area, according to the report.
Bond proceeds from the planned deal will fund capital projects, including distribution substations, rehabilitation of older facilities, and construction of new facilities to serve load growth, Standard & Poor’s said.
Analysts determined that the system has modest liquidity, with total working cash on hand historically of about one month.
The Johnson City Power Board has taken actions to improve liquidity with a goal of three months of reserves. Debt service coverage has been at least five times since 1997, and the board has historically demonstrated a large degree of reinvestment back into its utility system to fund identified improvements. Unrestricted cash has typically been adequate at about one month on hand, including discretionary funds available in an operating reserve, according to Standard & Poor’s.
