Rating Action: Moody's affirms Aa3 for Connecticut Transmission Municipal Electric Energy Cooperative; assigns Aa3 for planned forward sale bonds; outlook stable
Global Credit Research - 09 Jul 2020
Approximately $37.1 million of debt securities affected
New York, July 09, 2020 -- Moody's Investors Service has affirmed the Aa3 ratings for about $20.69 million of Connecticut Transmission Municipal Electric Energy Cooperative's (TRANSCO) 2012 series A transmission system revenue bonds. Concurrently, Moody's has assigned a rating of Aa3 to TRANSCO's planned forward delivery of about $16.36 million of Transmission System Revenue Bonds, 2021 Series A in October 2021. The outlook remains stable.
RATINGS RATIONALE
The rating actions reflect the fact that TRANSCO's Aa3 credit profile is supported by stable and predictable revenue and cash flow, which is expected to remain the norm, and the benefits of its strong ties through various financial, operational and contractual relationships with affiliated Connecticut Municipal Electric Energy Cooperative (CMEEC; Aa3 stable). The TRANSCO credit profile reflects the collective strength of the approximate A1 weighted average credit quality of TRANSCO's members, the lower risk nature of the transmission business, and the various transmission services contracts that provide strong legal protections to TRANSCO's bondholders. These credit supportive traits remain intact as TRANSCO and CMEEC transition under the leadership of a new CEO appointed in December 2019, which further distances the entities from governance related challenges that led to the termination of the prior CEO following the November 2018 federal indictments against several senior officials alleging conspiracy and misuse of CMEEC funds.
RATING OUTLOOK
The stable outlook reflects the sound weighted average credit quality of the members, the strong contractual arrangements with members, the transmission cost benefits from owning transmission assets, sound risk management practices, and a good liquidity profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Improvement of the members' credit quality
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- If there is material decline in the members' credit quality or any of TRANSCO's or CMEEC's members/participants challenge their contractual obligations
- If liquidity for CMEEC and by association, TRANSCO, becomes strained
LEGAL SECURITY
Transmission Finance and Service Agreements (TFSA):
For the 2012 series A transmission system revenue bonds issued and outstanding and the planned forward delivery of 2021 series A transmission system revenue bonds in October 2022 under the Transmission System Revenue Bond Resolution, there is a pledge of revenue pursuant to the TFSA between TRANSCO and CMEEC, under which TRANSCO agrees to provide transmission services to CMEEC. Under the TFSA, CMEEC agrees on a take-or-pay basis to pay all monthly transmission costs incurred by TRANSCO, including debt service on the transmission system revenue bonds. These sum sufficient payments from CMEEC are considered absolute and unconditional regardless of whether any transmission services are provided and are considered operating expenses of CMEEC, payable ahead of any debt service payment on any CMEEC bonds outstanding. The sole source of funds for payment under the TFSA comes from payments made under the general transmission service agreements (GTSAs) that CMEEC has with its members, thereby effectively making the GTSAs part of the security package for TRANSCO's transmission system revenue bonds. Since the terms of the GTSAs require collection of sufficient funds to pay all CMEEC transmission related operating costs and debt service, Moody's views the risks to investors in TRANSCO debt and CMEEC transmission services revenue bonds as effectively the same. Since the municipal utility for the Town of Wallingford (Wallingford) and Mohegan Tribal Utility Authority (MTUA) are not owners of the TRANSCO transmission assets, no costs of the assets owned by TRANSCO are allocable to them, and they have no responsibility for, and receive no economic benefits from, the assets. The TRANSCO bonds are also secured by a maximum annual debt service reserve (DSR) requirement.
General Transmission Services Agreements (GTSAs):
The GTSAs are full requirements, take or pay contracts with CMEEC members for transmission services and will be in effect through at least December 31, 2052, which date is well beyond the longest dated debt maturity. The GTSAs are not part of the security for the CMEEC power supply system revenue bonds. Costs are divided into fixed costs and usage costs under the GTSAs; fixed costs include debt service under the transmission services revenue bond resolution, as well as costs for new projects or other financial contracts. Since neither Wallingford nor the MTUA participated in the TRANSCO Project they are not obligated to pay any fixed costs, instead Wallingford makes direct payment to ISO-NE for transmission services they receive based on the ISO-NE tariff and MTUA pays CMEEC for transmission services under the arrangement it has for bundled supply services provided under its power supply contract with CMEEC. Members must charge sufficient retail rates to meet all obligations to CMEEC and payments to CMEEC under the GTSAs are operating expenses of the members. CMEEC segregates the transmission usage receipts from MTUA, and these transmission service payments are part of the Revenues under the CMEEC Transmission Services Bond Resolution and are available to pay for certain TRANSCO usage cost billings and other administrative and financial costs of CMEEC, but not debt service under the CMEEC Transmission Services Bond Resolution or the TRANSCO Transmission System Revenue Bond Resolution.
USE OF PROCEEDS
Proceeds of the 2021 series A transmission system revenue bonds will be used to currently refund TRANSCO's 2012 series A Transmission System Revenue Bonds and to pay for the cost of issuing the 2021 series A Bonds.
PROFILE
TRANSCO is a legally separate, special purpose, publicly-owned, joint-action electric transmission entity created 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. (ISO-NE). Each of TRANSCO's members is a member in CMEEC. 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 MTUA.
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.
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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.
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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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