Standard & Poor’s on Friday revised PowerSouth Energy Cooperative’s outlook to positive from stable and affirmed its BBB-plus rating.
The cooperative had $1.02 billion of outstanding debt as of Dec. 31.
“The potential for a higher rating stems primarily from the expected strengthening of PowerSouth Energy’s financial metrics as a result of gradually increasing wholesale rates and the establishment of a cash reserve to fund a portion of future capacity additions,” said a report by analyst Judith Waite.
“An additional positive financial factor is the improved cash flow at the propane business, which is now self-supporting,” Waite wrote. “Moreover, the overall strengthening of the southern Alabama and the northwest Florida economies lends support to the cooperative utility’s credit profile.”
Waite said the cooperative’s strengths are tempered by the fact that it historically had weak metrics, maintaining minimal debt service coverage and liquidity in order to keep wholesale rates as low as possible.
“The agreement of the cooperative board members to raise rates annually by an amount that will not only cover costs but also create a reserve to partially fund the anticipated capital spending, indicates a modest shift toward stronger bondholder protection,” Waite said.
PowerSouth Energy, formerly known as Alabama Electric Cooperative Inc., is a generation and transmission cooperative that sells wholesale power to 16 distribution cooperatives and four municipally owned utilities in 39 Alabama counties.
