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Rating Action: Moody's assigns an initial Aa3 rating to Lewis County PUD No. 1, WA's Series 2021 Electric Revenue BondsGlobal Credit Research - 09 Apr 2021New York, April 09, 2021 -- Moody's Investors Service has assigned an initial Aa3 rating to Lewis County Public Utility District No. 1, WA's $31.8 million Electric System Revenue and Refunding Bonds, Series 2021.RATINGS RATIONALEThe assignment of the Aa3 rating reflects a growing service area in Lewis County with below average resident income levels. Governance is a key driver of the initial rating and incorporates the district's adopted fiscal policies, conservative budgeting and full rate setting policy with history of regular increases that supports solid debt service coverage and liquidity. While total retail load has declined 1.1% in 2020 because of the coronavirus pandemic, an uptick in usage through February 2021 indicates a return to typical consumption levels and will likely support continued sound financial performance. The rating also considers the district's elevated customer concentration, but its primarily residential customer base provides stability. The rating also factors the district's manageable debt leverage and satisfactory legal provisions. The absence of a debt service reserve fund for the Series 2021 bonds represents a modest credit weakness though mitigated by solid coverage and additional liquidity in the rate stabilization fund.RATING OUTLOOKOutlooks are not typically assigned to local governments with this amount of debt outstanding.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING- Sustained improvement in debt service coverage levels and growth in liquidity- Significant improvement of service area size and wealth measuresFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING- Weakened debt service coverage or liquidity levels- Slow adoption of rate increases to meet growing expenditures- Material contraction in the district's service area economyLEGAL SECURITYThe bonds are secured by a senior lien on net electric revenue with a 1.25x rate covenant. Notably, the Series 2021 bonds are not supported by a debt service reserve fund which represents a modest risk to bondholders, though mitigated by the presence of a rate stabilization account. Legal provisions also include an additional bonds test to provide coverage of 1.25x the maximum annual debt service.USE OF PROCEEDSProceeds of the Series 2021 bonds will be used to finance various capital improvements to the electric system including implementation of an automated metering infrastructure, rehabilitation of substations, purchase of a mobile substation and breaker replacements. Proceeds will also be used to refund the outstanding maturities of the Electric System Revenue Refunding Bonds Series 2016 for debt service savings with no extension of maturity.PROFILELewis County Public Utility District 1, WA's service territory encompasses about 2,450 square miles and includes all of Lewis County (Aa3) except for the City of Centralia in southwest Washington. The district also serves a portion of Pierce County (Aa1 positive) near Mount Rainier National Park for a combined service area population of 80,250 residents. The district is a preference customer of Bonneville Power Administration and receives roughly 89% of its power from this agency.METHODOLOGYThe principal methodology used in this rating was US Municipal Utility Revenue Debt published in October 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1095545. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor 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.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_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.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. 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