CHICAGO — Moody's Investors Service is taking a positive view of the Springfield, Ill. water, light and power utility's $500 million debt restructuring.
Ahead of the senior-lien electric revenue bond sale that will restructure debt for operating relief and generate traditional present value savings, Moody's revised its outlook on the city utility's A3 credit to stable from negative.
Standard & Poor's affirmed its A rating and stable outlook.
The city council last month approved an electric rate restructuring plan that will phase in rate changes over four years with the refunding aimed at smoothing out costs to stabilize the utility's strained fiscal condition.
The city, home to the state capital, serves as the issuer for its City Water, Light & Power utility and the deal will restructure most of the utility's electric revenue debt. Moody's outlook revision recognizes "the swift implementation of credit supportive actions in the last month."
The restructuring plan strengthens the utility's fixed cost recovery, indexes future annual rate increases to the regional consumer price index, clarifies and limits the annual transfer to the city, and lowers the annual debt service repayment schedule, Moody's said.
The deal will extend the final maturity on the existing debt by three years while also generating 5.6% in present-value savings.
"These actions collectively improve the context surrounding the utility's historically politicized operations by providing the utility with needed financial cushion to absorb potentially weaker margins, while also increasing internal liquidity levels," Moody's said of the plan.
The utility is not fully clear of its challenges.
"The A3 rating recognizes the recent substantive credit positive developments but acknowledges the potential challenge to sustain these initiatives on a long-term basis given the state of the regional economy and the state's fiscal pressures, the weak wholesale power market, a weak liquidity profile and the historically politicized rate raising process within the city," Moody's wrote.
Standard & Poor's said debt service coverage has been inconsistent due to transfers and liquidity weak but improvement should come with the debt restructuring, rate changes, and lower expected fuel and power costs. Without the projected improvements, the city could see the rating fall, the rating agency warned.
Standard & Poor's said given the utility's significant dependence on coal-fired generation and its exposure to environmental regulation, no upgrade over the next two years is expected.
The municipally-owned electric generation and distribution system enjoys unlimited local rate setting authority by the Springfield City Council and covers approximately 134,000 people in a region that extends beyond the city limits. The state government comprises about 10% of annual total operating revenue.
Moody's and Standard & Poor's both lowered their ratings on the credit by notches in 2012 after the utility experienced a covenant violation that required a $2.2 million draw on a revolving bank line of credit at the close of fiscal 2012 in February.
Citi is the senior manager on the upcoming transaction that is expected to price Nov. 12, according to an investor presentation released Monday.
