Fitch Ratings and Standard & Poor’s upgraded Lakeland’s energy revenue bonds to AA-minus from A-plus recently. The higher rating was assigned to the upcoming sale of $200 million of revenue and refunding bonds by both agencies. They said the outlook is stable.
“The upgrade reflects a return to Lakeland Electric’s historically sound financial position, including healthy coverage of debt service and ample liquidity, after the expiration of an unfavorable contract with the Florida Municipal Power Agency in December 2007,” Fitch said.
Moody’s Investors Service assigned an A1 rating to the upcoming sale on Monday and changed the rating outlook to negative, affecting $558.2 million of outstanding revenue bonds.
“Moody’s changed the outlook to negative from stable to reflect the utility’s weak bond covenants, including a weak rate covenant and reserve policy, in relation to the uncertain credit environment and the utility’s significant variable-rate debt and interest-rate swap exposure,” Moody’s said.
While noting that legal provisions on the system’s revenue bonds are weak and remain a credit concern, Fitch said the system’s “historically strong coverage of debt service from operating revenues averaging 2.2 times annually for the past five years provides some comfort.”
Standard & Poor’s said it expected Lakeland Electric’s business risk profile would continue to be slightly above average based on the performance of the owned generating assets, access to moderately priced electricity, good use of hedges and interest-rate swaps to mitigate cost increases, and the Lakeland City Council’s willingness to raise rates to maintain the utility’s financial risk profile.
The upcoming negotiated sale by Goldman, Sachs & Co. is expected to be structured as $182 million of Series A revenue bonds with maturities to 2036 and $16 million of Series B refunding bonds with maturities to 2026.
The bonds, which could be sold this week, will refund Series 1999A and 2001B bonds and pay for capital improvements.
RBC Capital Markets Corp. is the city’s financial adviser. Holland & Knight LLC is bond counsel. Underwriters’ counsel is Nabors, Giblin & Nickerson PA.
