Fitch Rates JEA's $150MM Subordinated Revenue Bonds 'AA+'

Business Wire,  Sept 17, 2002  

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Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 17, 2002

Fitch Ratings assigns an 'AA+' rating to JEA's $150 million electric system subordinated revenue bonds, 2002 series D. The Rating Outlook is Stable. Proceeds will finance a portion of the cost of construction and acquisition of additions, extensions, and improvements to JEA's Electric System. The bonds are expected to price Sept. 18 and 19 with Bear Stearns, & Co. Inc. as senior manager.

The 'AA+' rating reflects JEA's forward thinking management, diverse and growing economic base, and historically solid financial performance (with total debt service coverage at the electric system, pursuant to the resolution, of 2.56 times (x) for 2001, and coverage of 1.56x adjusted to reflect the debt service payment of JEA's power park obligation). Due to higher than expected costs associated with the re-powering of JEA's Northside Plant, coverage ratios for 2002 will fall below earlier estimates to about 2.7x. However, coverage should rebound in 2003 and is targeted at around 2.8x. Management continues to look for ways to add value to JEA through local, regional and national associations including The Energy Authority (TEA), Colectric Partners, and another alliance focused on risk management issues. In addition, JEA recently implemented a program called 'TargetSmart' to further refine its operating performance, lower costs, and improve customer service.

Also, JEA's rating takes into account a favorable and growing customer base with no concentration, very competitive retail rates, and good plant operations. JEA benefits from low power costs that are largely attributable to a well-managed fuel mix (39% coal/pet coke, 23% coal, 7% natural gas, 23% oil, and 8% diesel/other). In addition, the diversified fuel supply, particularly the benefits associated with low cost pet coke and an array of fuel transportation options, provided JEA with stable energy costs even during volatile energy price periods.

Credit concerns do not appear to be significant and include challenges associated with a rapidly growing service territory, and JEA's debt management program, which is reliant on subordinate and variable-rate debt, interest rate swaps and other less traditional structures. As of June 30, 2002, JEA's gross variable-rate exposure was 30.2% of total debt, and net variable exposure was 23.4% (taking into account fixed-rate swaps and short-term investments earmarked as liquidity for variable-rate debt). At the present time, JEA's financial profile supports the 'AA+' rating on each lien; however, if additional debt issuances at the subordinate level were to materially alter JEA's debt structure, and JEA's business fundamentals were to considerably weaken, a downward notching of the subordinate debt rating may be warranted.

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