OREANDA-NEWS. Fitch Ratings has assigned an 'A+' rating to the following bonds issued by the city of Bryan, TX on behalf of Bryan Texas Utilities' (BTU) city electric system (city system):

--$82.8 million electric system revenue refunding and improvement bonds, new series 2016.

Bond proceeds will be used to finance transmission system and distribution system improvements, refund outstanding bonds for savings, and pay costs of issuance. The bonds will be sold via negotiated sale on July 12.

In addition, Fitch affirms its 'A+' rating on the following city electric system obligations:

--$152,890,000 electric revenue bonds, series 2006, 2007, 2008, 2009, 2010, and 2012.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by net revenues of the city electric system.

KEY RATING DRIVERS

CITY ELECTRIC SYSTEM: Bryan's city electric system is a vertically integrated electric utility that serves approximately 35,174 customers within Bryan's city boundaries. The city system also provides all-requirements electric service to the city of Bryan's rural electric system (rated 'A+' with a Stable Outlook), which is separately financed but shares the same senior management and all administrative functions.

SATISFACTORY FINANCIAL PROFILE: The city system's financial profile remains satisfactory for the rating although it is modestly weaker than Fitch's medians for similarly rated retail systems. Fitch calculated debt service coverage and coverage of full obligations was 1.99 times (x) and 1.24x, respectively, in fiscal 2015. Liquidity levels are adequate at 125 days cash on hand.

FLEXIBLE RATE STRUCTURE: The system's competitive rates include two adjustable mechanisms tied to fuel costs and regulatory costs, including transmission charges. The flexibility provided by the adjustable rate structure is expected to help offset projected cost pressures and maintain relatively stable financial performance through 2020.

WHOLESALE REVENUE: Wholesale sales accounted for 31% of MWh sales and 21% of operating revenues in fiscal 2015. While the bulk of wholesale sales are made under contract, the city system generates a significant portion of its net margin on opportunistic sales into the ERCOT market, which is inherently more volatile.

DIVERSE POWER SUPPLY: The system obtains its power supply through a combination of owned gas-fired resources, purchased power contracts, and Bryan's 21.7% ownership of the Gibbons Creek (Gibbons Creek) coal plant. The plant ownership is through the city's participation in the Texas Municipal Power Agency (TMPA; rated 'A+' with a Stable Outlook). The continued successful operation of the plant since commissioning in 1983 mitigates the single unit risk.

RATING SENSITIVITIES

WHOLESALE EXPOSURE: Bryan's city electric system's satisfactory financial profile is projected to remain in line with the rating but does rely on opportunistic wholesale sales into the ERCOT market, which could negatively impact the system's financial performance if projected sales are not realized. An unwillingness to raise rates to compensate for revenue shortfalls could exert negative pressure on the rating.

TMPA RESOLUTION: Near-term decisions on the city system's continued participation in the Texas Municipal Power Agency present some uncertain risks, particularly given the joint-action agency's litigious history. Unexpected challenges in resolving the city system's membership would be viewed negatively.

CREDIT PROFILE

The City of Bryan, TX is located approximately 90 miles west of Houston in Brazos County and is considered a twin city of College Station, TX. Bryan owns and operates two electric systems: the City Electric System and the Rural Electric System. The combined systems are referred to as Bryan Texas Utilities (BTU). Each system, while operated by a common staff, is maintained separately for accounting and reporting purposes.

The city system has operated since 1909 and provides electric service within the City's boundaries. The rural system's service territory includes area outside of the city of Bryan adjacent to and including portions of the City of College Station, and parts of Burleson and Robertson counties in a radius of about 20 miles from the City of Bryan. BTU's rural system is an all requirements customer of the city system.

SATISFACTORY FINANCIAL PROFILE

Fitch calculated debt service coverage and coverage of full obligations were 1.99x and 1.24x, respectively, in fiscal 2015. These figures are modestly lower but generally in line with Fitch's 'A+' retail system medians of 2.31x and 1.40x for debt service coverage and coverage of full obligations. The city system's recent financial performance has remained relatively stable and consistent with fiscal 2015's results.

Fiscal 2015 liquidity levels are sound at $48.9 million or 125 days cash on hand. While cash balances are somewhat below the median for similarly rated peers (186 days) the city system's flexible rate structure and rate competitiveness mitigate the modestly lower liquidity levels.

Wholesale sales, not including sales to the rural system, generated $39.2 million in fiscal 2015 or 21% of the city systems total operating revenues. While the bulk of the sales are made under contract, a portion is derived from opportunistic ancillary sales into ERCOT, which is inherently more volatile.

DIVERSE POWER SUPPLY

The city system's total available capacity of 454MW is sufficient to meet the city and rural systems' peak demand, which experienced an all-time high of 319MW in August 2015. BTU's power supply mix consists of a combination of own gas fired resources, purchased power contracts and its ownership share in Gibbons Creek through TMPA.

TMPA members are expected to decide later this year on the future of the joint-action agency and, possibly, on Gibbons Creek. The uncertainty regarding BTU's future participation in TMPA is viewed as credit neutral given the likely ability to replace the loss of Gibbons Creek along similar or better economic terms, based on current market pricing. However, any unexpected challenges or legal issues arising from the TMPA decision-making process would be viewed negatively, particularly given the joint action agency's litigious history.