BRADENTON, Fla. - Moody's Investors Service changed the rating outlook to positive from stable on the North Carolina Eastern Municipal Power Agency's bonds, citing the pending sale of its assets to Duke Energy Progress Inc.
Moody's affirmed its Baa1 ratings on $1.8 billion in outstanding revenue bonds Oct. 16. The bonds will be defeased when the sale occurs.
"The rating outlook change to positive incorporates the benefits that should follow to NCEMPA's credit profile if the agency is successful in closing the sale of its generation assets," said analyst Dan Aschenbach. The agency is also known as ElectriCities.
"The positive rating outlook also acknowledges the consistent improvement in the agency's financial metrics, the strong liquidity profile of the agency, and the average weighted credit quality of A2 of the NCEMPA's participants," he added.
In September, a deal was finalized for ElectriCities to sell its generation assets to Duke for $1.2 billion in cash pending various approvals, including from regulatory agencies and the North Carolina General Assembly.
"The transaction, if completed, is a credit positive event for NCEMPA because debt leverage and the wholesale power rate that NCEMPA charges to its municipal customers will be reduced significantly for several years," Aschenbach said.
Once the sale closes, the agency's power needs will be supplied through an all-requirements power purchase agreement with Duke that is expected to mitigate its wholesale rates, which led to high retail rates for residential customers of the agency's 32 participants, according to Moody's.
As the sale is completed, NCEMPA will also defease its outstanding bonds using asset sale proceeds, reserves, and the issuance of new bonds to take out some of the existing bonds, resulting in a 70% reduction in overall outstanding debt.
Moody's outlook change comes on the heels of a milestone in the pending sale with Duke's Oct. 10 filing for approval of the deal with the Federal Energy Regulatory Commission - one of several major steps required to complete the transaction that could take a year or longer to complete.
ElectriCities bonds are rated A-minus by Fitch Ratings and Standard & Poor's.
