FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Improvement of CMEEC member/participant credit quality
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Material CMEEC member/participant credit quality decline coupled with materially weaker financial metrics
- If unexpected operating and financial pressures result in the event that Wallingford exercises its option to exit its Pierce project contract that otherwise expires at the end of 2021
- Challenges by any municipal utility of their take-or-pay or other contract obligations
- If liquidity becomes strained
LEGAL SECURITY
Power Supply Revenue Bonds:
Generally, the 2013 series A power supply system revenue bonds issued and outstanding under the Amended and Restated Power Supply System Revenue Bond Resolution are secured by revenues and receipts from purchasers of power provided by CMEEC under replacement power sales contracts (RPSCs), under the Wallingford Pierce unit power sales contract, and under the Mohegan Tribal Utility Authority (MTUA) Pierce unit power sales contract. The RPSCs extend at least until April 2053, which is well beyond CMEEC's longest dated debt maturity date, and require the 6 contracting power purchasers under the RPSCs on a take-or-pay basis to take their full requirements from CMEEC to serve their retail load. The security for the planned forward delivery of 2022 series A power supply system revenue bonds in October 2022 will be the same as the existing series 2013 series A power supply system revenue bonds excluding the above referenced Wallingford and MTUA Pierce unit power sales contracts. The Wallingford and MTUA Pierce unit power sales contracts will continue to secure the unrefunded portion of the 2013 series A power supply system revenue bonds for the duration of their respective contract terms. With respect to the Wallingford and MTUA Pierce Unit power sales contracts, the maturity date of the unrefunded portion of the 2013 series A power supply system revenue bonds extends beyond the respective terms of the current Pierce unit power sales contracts with Wallingford and MTUA. Although the contracting parties can extend the terms of expiration dates, this is not required. Accordingly, in the absence of any extension, Wallingford and MTUA would not have any liability with respect to the debt service on the unrefunded portion of 2013 series A power supply system revenue bonds beyond the current expiration dates of their respective contracts. In this instance, fixed costs previously paid by Wallingford and MTUA in that instance would be allocated pro rata among the remaining power purchasers according to their entitlement allocations in CMEEC's Pierce project and given the take-or-pay nature of their obligations. The power supply system revenue bonds are also secured by a maximum annual debt service reserve requirement, and CMEEC is required to establish rates at least equal to 110% of aggregate debt service.
Transmission Services Revenue Bonds:
Generally, the 2012 series A transmission services revenue bonds issued and outstanding and the planned forward delivery of 2021 series A transmission services revenue bonds in October 2021 under the Transmission Services Revenue Bond Resolution are secured by a net revenue pledge from revenues produced from long-term take-or-pay General Transmission Services Agreements (GTSAs) executed with the six current members through December 31, 2052. The expiration date of the GTSAs is well beyond CMEEC's longest dated debt maturity. Neither Wallingford nor the MTUA have any obligation with respect to debt service under the Transmission Services Revenue Bond Resolution or expenses related to the TRANSCO Project. The transmission services revenue bonds are also secured by a maximum annual debt service reserve requirement, and CMEEC is required to establish rates at least equal to 110% of aggregate debt service.
USE OF PROCEEDS
Proceeds of the 2022A power supply system revenue bonds will be used to currently refund a portion of CMEEC's Power Supply System Revenue Bonds, 2013 Series A, which currently have about $47.98 million outstanding and to pay for the cost of issuing the 2022A Bonds.
Proceeds of the 2021A bonds will be used for the purpose of currently refunding in full the outstanding CMEEC Transmission Services Revenue Bonds, 2012 Series A and to pay for the cost of issuing the 2021A Bonds.
PROFILE
CMEEC is a joint action agency that is currently a full requirements power supplier to six municipal electric utilities in Connecticut (City of Groton; Borough of Jewett City; City of Norwich; Second (South Norwalk) and Third (East Norwalk) Taxing Districts of the City of Norwalk; and Bozrah Light & Power) and to the Mohegan Tribal Utility Authority (MTUA). Wallingford ceased being a full requirements customer of CMEEC as of January 1, 2014. However, Wallingford is still responsible for all of its allocable share of costs of the Pierce Project, but has the option to opt out of the Project at the end of 2021. In 2009, CMEEC also created Connecticut Transmission Municipal Electric Energy Cooperative (TRANSCO: Aa3 stable), an affiliated legally separate, special purpose, publicly-owned, joint-action transmission entity under CMEEC's existing statutes to acquire and own transmission assets comprising part of the regional electric grid administered by the Independent System Operator - New England, Inc. Each of TRANSCO's members is a member or participant in CMEEC.
METHODOLOGY
The principal methodology used in these ratings was US Municipal Joint Action Agencies Methodology published in August 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1163699. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Kevin Rose Lead Analyst Project Finance Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Kurt Krummenacker Additional Contact Project Finance JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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