Standard & Poor's Ratings Services said it lowered to 'A+' from 'AA' its rating on the Morgan County Industrial Park and Economic Development Cooperative District, Ala.'s series 2009A taxable and series 2009B tax-exempt revenue bonds. The outlook is stable.

"The downgrade reflects our opinion of the weakened credit quality of the Tennessee Valley Authority, which is the source of the payments in lieu of taxes that secure the bonds, and our opinion about how these payments are incorporated into the authority's rates and that these payments are less likely to receive extraordinary financial support from the federal government," said Standard & Poor's credit analyst Russell Bryce.

The ratings also reflect:

•Maximum annual debt service coverage of 7.8x from fiscal 2011 revenues;
•An additional bonds test requiring 1.25x annual debt service coverage on all existing and proposed bonds; and
•The long history of the pledged revenue stream and strong credit quality of the authority despite the recent downgrade.


These strengths are somewhat offset by potential fluctuations in the district's share of the TVA payment in liew of taxes (PILOTs).

A pledge of the each of district member's share of PILOTs from the TVA secures the bonds. The PILOTs are paid to the members under a formula that pays 5% of gross TVA power sales to the states in which TVA has assets and makes power sales.

TVA, per section 13 of its enabling legislation, is required to make PILOTs to the states in which it operates, which are Tennessee, Alabama, Mississippi, Kentucky, Virginia, Georgia, and North Carolina. The total amount of PILOTs is 5% of gross TVA power sales and are distributed to the states based on the proportion of asset book value in the respective states. The PILOTs are calculated annually and distributed monthly to each state. TVA has been making the PILOT payments to states since 1933.

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