Fitch Ratings on Tuesday assigned a BBB-minus issuer credit rating to Big Rivers Electric Corp.
It is the first rating assigned to the utility by Fitch, which said that the rating outlook is stable.
Based in Henderson, Big Rivers was formed in 1961 and supplies wholesale electricity and transmission to three distribution cooperatives that provide service to approximately 110,000 retail customers in 22 western Kentucky counties. In total, Big Rivers has total capacity of 1,833 megawatts.
“After emerging from bankruptcy in 1998, Big Rivers entered into a 25-year lease of all of its generation with an investor-owned utility in exchange for annual lease payments, and a fixed-price purchase power contract,” said a report by Fitch analyst Joanne Ferrigan.
The contracts for those services are with E.On, and LG&E Energy Marketing, which is a subsidiary of E.On. The contracts are being unwound.
“The unwind will result in Big Rivers receiving cash and considerations with a value of $817 million from E.On, in addition to gaining back control of its generation fleet,” Ferrigan said.
Ferrigan said Big Rivers will use the payment it receives from unwinding the deals to pay down approximately $140 million of debt, provide $253 million for rate stabilization, and to build system equity to 30%.
“The BBB-minus rating reflects the system’s low-cost power resources and competitive retail rates,” Ferrigan said. “Substantial cash reserves will provide rate stability over the next few years.”
Credit risks include customer concentration, lack of fuel diversity with 91% of power supply coming from older coal-fired resources, and rate regulation by the Kentucky Public Service Commission, Ferrigan noted.
Any plans for future debt issuance by Big Rivers were not immediately available. Its debt in the past has been sold through conduit issuers such as Ohio County.