Bangkok--17 Apr--Standard & Poor's
Standard & Poor's Ratings Services revised its outlook on the 'BB+' standard long-term rating and underlying rating (SPUR) on Guam Power Authority's revenue debt to stable from negative due to the authority's improved operational and fiscal performance over the past two years.
The rating service simultaneously affirmed the ratings on the authority's revenue debt.
The speculative-grade ratings include Guam Power Authority's more-efficient use, and greater availability, of its base-load assets, allowing management to reduce its dependence on the costlier diesel-fired peaking units; Guam Public Utilities Commission's continued support under the Consolidated Commission on Utilities' governance structure that oversees both Guam Power Authority and Guam Waterworks Authority; and Guam's (B/Watch Neg) rebounding economy due to increased tourism and tourism-related expansions, as well as the territory's long-term prospects because it stands to gain as many as 8,000 Marines and 9,000 dependents from Okinawa, Japan by 2014.
The rating remains constrained by uncertainty regarding the general government's ability to address a series of long-term liabilities owed to the authority.
"It is our belief that the authority's financial performance is sustainable, especially given the improvements to its operations and regulatory relationship, as well as those to Guam's economy," said Standard & Poor's credit analyst Theodore Chapman. "An investment-grade rating is still precluded by the uncertainty over whether Guam will be able to pay the authority all the money it owes and what kind of effect that might have on the authority's ability to address its identified capital requirements."
Fiscal 2006 unaudited results indicate continued improvements to the authority's finances, including about 1.5x annual debt service coverage. On-balance-sheet cash and cash equivalents of $16.8 million was equivalent to a modest 24 days' cash on hand, but this represents a large underrecovered position on fuel costs. Guam Public Utilities Commission recently approved an 11.87% levelized-energy-adjustment-clause-related increase in January 2007 that should help cash flows improve through the June 30, 2007, effective period. Unaudited fiscal 2006 results follow audited fiscal 2005 results that exhibited very similar figures. This is a marked improvement from fiscal 2003, when coverage was below 1x. Management's maintenance of reasonable net margins and liquidity are important given that it has identified more than $650 million of capital projects over the next 10 years.
Guam accounted for 15.4% of the authority's total fiscal 2005 revenues. While Guam has thus far been able to continue to pay its current bills for utility services, there remains uncertainty as to whether or not Guam will be able to continue to make substantial progress on its accounts payable and promissory notes to the authority. The U.S. Supreme Court made this even more uncertain when, on March 28, 2007, it ruled that a proposed Guam deficit bond-financing package -- part of which would have addressed the liabilities owed to the authority -- would have exceeded the territory's debt cap.
The rating action affects roughly $380 million of revenue bonds outstanding.
Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com . All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com;under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search.
Media Contact:
David Wargin, New York, (1) 212-438-1579
[email protected]
Analyst Contacts:
Theodore Chapman, Dallas (1) 214-871-1401
Paul Dyson, San Francisco (1) 415-371-5079