Standard & Poor's Ratings Services said it has raised its rating on Anderson, Ind.'s electric utility revenue bonds to A-minus from BBB-plus.
The outlook is stable.
"The upgrade primarily reflects our view of improved debt service coverage," said Standard & Poor's credit analyst Judith Waite. After 2012, only the 2003 revenue bonds will be outstanding and annual debt service will decline to about $800,000 from $3.3 million in 2011. Management does not expect to issue debt in the next five years, so we view the stronger debt service coverage (DSC) as sustainable. Fixed charge coverage, however, will continue to be weak, in our view, at about 1.1x; and unrestricted cash is minimal, so the rating will remain at the low end of the A category.
The rating reflects these credit strengths: a take-and-pay, all-requirements contract with Indiana Municipal Power Agency (IMPA; A-plus/stable) that extends through 2042; the limited business risk associated with electricity distribution; competitive rate structure across residential and commercial user classes; and moderate capital investment requirements in the next five years that the utility will fund with cash from operations.
Anderson's still weak economy and lower earnings resulting from the impact of the recession on the auto industry and its suppliers tempers these strengths, but the city is working to attract new business and those efforts are beginning to show good results.
The stable outlook reflects the utility's financial risk profile — and the rating — will not change during the two-year outlook horizon. The 2012 debt reduction will strengthen the financial risk profile and forestall the need for rate increases, which should help encourage the growth of new businesses in the area.
