Fitch Rates Indiana Municipal Power Agency's $32MM Revs 'A+'

Business Wire, Nov 19, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 19, 2002

Fitch Ratings has assigned a rating of 'A ' to Indiana Municipal Power Agency's (IMPA) $32 million of power supply system revenue bonds, 2002 series B. If market conditions permit, IMPA will also issue $68 million in refunding bonds to replace its series 1998 B bonds. The $440 million of outstanding senior parity debt is affirmed at 'A '. The Rating Outlook is Stable. Proceeds from the debt issuance will provide funds to finance projects that will add summer peaking capacity, maintain transmission assets, and upgrade environmental facilities at certain plants. The bonds are expected to price the week of Dec. 2 with Salomon Smith Barney as lead underwriter.

The 'A ' rating is supported by IMPA's low-cost power resources, resulting in very competitive retail rates at the member system level, excellent financial record, and management's ability to effectively handle the volatile electricity and fuel markets. IMPA benefits from a favorable generation portfolio, with 55% of its power supply needs met through owned and member-owned generation (most of which is coal-fired) and 45% through intermediate and long-term power purchase agreements. The balance of their requirements is purchased on a short-term/seasonal basis, allowing them to take advantage of market opportunities. For year-to-date 2002, IMPA's average rate to members was a competitive 3.67 cents per kilowatt-hour.

IMPA's financial performance has been consistently strong, with 2001 debt service coverage consistent with historical levels at 1.25 times (x). Net plant to net debt was 1.12x, and equity to total capitalization was 18.7%, up from 17.3% in 2000. Cash on hand remains strong, covering 79.6 days of operations, and total cash and investments as of 9/30/02 were $170 million, or about 38% of debt. The five largest members each have healthy financial profiles and growing service territories. IMPA's total capital expenditures are projected to be about $98.4 million for 2002 through 2007, with 40% coming from operations and 60% from new debt.

Credit risks center on IMPA's need to secure additional power supply over the next several years due to the expiration of certain power purchase agreements, the most significant being with Cinergy's PSI Energy, Inc. (PSI), which expires at the end of 2006. IMPA is currently considering whether to replace this power with a new long-term agreement or through an ownership interest in baseload generation. With the construction of the Anderson CT Expansion Project, to be completed in the summer of 2004, the utility will be prepared for future summer peaking needs. Another concern is the high concentration of industrial customers in the service territories of IMPA's largest members. While there is diversity among the different types of industries and no one member system customer accounts for more than 1.5% of IMPA's revenues, the advent of a competitive retail market or a sustained downturn in the economy could impact this customer class. Although the rates charged by IMPA's members to their large customers are very competitive with other utilities in the area, it is important to note that Indiana is a low cost state, which could make it more difficult to operate in a more open competitive environment.

Indiana Municipal Power Agency (IMPA), a joint action agency, provides wholesale electricity to 32 members, pursuant to take-and-pay full requirements contracts that expire on April 1, 2032. The contracts include an unlimited step-up provision, which, in the event of one member defaulting, calls for all the other members to pick up the loss through their rates. The member utilities are located throughout the state and serve a combined population of about 260,000 people. IMPA and its members own 555 mega-watts of generating power.