Fitch Ratings recently affirmed the Municipal Energy Agency of Nebraska's (MEAN) Issuer Default Rating (IDR) and $117.2 million power supply system refunding revenue bonds at ‘A+’ with a stable outlook.
The 'A+' rating reflects MEAN's very strong all-requirements power contracts and the strong credit quality of its largest participants, which exhibit healthy cash flows and low leverage metrics.
Fitch views favorably MEAN's ability to collect sufficient operational revenues primarily through long-term, all-requirements contracts and its autonomous rate-setting ability.
MEAN continues the process of signing modernized long-term power supply contracts with many of its wholesale power supply participants. The MEAN Board of Directors and Governance Review Committee completed a three-year process in 2023 to modernize MEAN’s Total Power Requirements Power Purchase contract, known as the Service Schedule M (SSM) contract.
Fitch states the new terms of the SSM contract remain supportive of credit quality by providing long-term power supply planning certainty to MEAN and financial protection to remaining participants if other participants exercise the 25-year termination notice provision. MEAN continues to provide a low cost and diversified power supply to its participants.
Keys ratings drivers included:
Very Strong Revenue Defensibility
MEAN's revenue defensibility assessment of very strong reflects revenue consistency provided by its long-term, all-requirements contracts with 55 SSM participants that extend beyond the final maturity of MEAN's existing debt in 2039. Contract terms permit MEAN to recover all generation and business costs through rates.
Low Operating Risk
Fitch assesses MEAN's operating risk assessment as low, reflecting the utility's consistently low operating cost burden, which averaged approximately 6.1 cents/KWh over the past three years. MEAN maintains a reliable, long-term, diverse power supply portfolio consisting of owned, leased and purchased power supply resources, as well as transmission system arrangements.
Strong and Consistent Financial Profile
MEAN's financial performance is consistently strong, albeit with a relatively slim operating margin between 2%-4% over the past three years. Debt service coverage has ranged between 1.0x and 1.3x, while Fitch calculated coverage of full obligations has been modest at 1.1x or below. Cash flows are sufficient to support annual capex spending after debt service costs.