OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating to the approximately \$519.7 million public utility refunding revenue bonds, series 2015 issued by the City of Springfield, Missouri (the city) on behalf of the Board of Public Utilities of the City of Springfield, Missouri (City Utilities).

The bonds are expected to price on May 20, 2015 via a competitive bid. Proceeds will be used to refund largely all of the outstanding series 2006 public utility revenue bonds and pay cost of issuance. There will be no debt service reserve fund (DSRF) for the series 2015 bonds.

In addition, Fitch has affirmed the 'AA' rating on the following:

--\$596.5 million public utility revenue bonds, series 2006 (to be refunded) issued by the city on behalf of City Utilities;
--\$34.74 million certificates of participation (COPs), series 2006A&B issued by City Utilities;
--\$43.8 million COPs, series 2012 issued by City Utilities;
--\$36.9 million COPs, series 2014 issued by City Utilities.

The Rating Outlook is Stable.

SECURITY

The public utility revenue bonds are secured by a senior lien on combined net revenues of the public utility system, inclusive of the electric, natural gas, water, transportation and telecommunication systems.

The COPs are subordinate to the revenue bonds and secured by a lien on combined excess revenues of the public utility system and a security interest in the assets financed with the leases.

KEY RATING DRIVERS

DIVERSIFIED UTILITY SERVICE PROVIDER: The city of Springfield, MO (the city), operates City Utilities, a combined utility system that provides a diverse host of services, including electric and gas distribution, water, transit and telecommunications services. The largest of the utility's services is the electric system, which accounted for 63% of fiscal 2014 (Sept. 30) revenue.

SOUND FINANCIAL METRICS: Financial metrics have strengthened in fiscal years 2013 and 2014 due to a series of implemented rate increases. The rebound occurred after a number of years with tightened metrics due to slowed energy sales and increased debt associated with the construction of John Twitty Energy Center Unit 2 (JTEC Unit 2).

REGULAR RATE ADJUSTMENTS ANTICIPATED: The utility has demonstrated a willingness to adjust rates to support ongoing capital projects and increased debt service obligations. Planned rate increases will support solid liquidity and financial metrics, with debt service coverage (DSC) projected above 2.5x in 2019. Competitive rates provide sufficient rate-making flexibility.

DIVERSE SERVICE AREA: The city's economy is varied, with a range of industry sectors and minimal customer concentration. Housing and subdivisions have shown renewed growth and residential sales make up a healthy 45% of combined retail revenue, which provides stability.

EXPOSURE TO ENVIRONMENTAL REGULATIONS: The majority of the electric system's power is derived from coal-fired generation, which could pose a challenge for the utility as environmental standards become more stringent. Positively, the capital plan includes plant upgrades and conversions to make the utility Mercury and Air Toxics Standards (MATS) compliant in 2015.

RATING SENSITIVITIES

MANAGEMENT OF RATES: Given increasing environmental standards that have the potential to be costly, along with variability in electric, natural gas and water sales, managing rates to maintain sound financial performance is key to the rating.

CREDIT PROFILE

City Utilities is a component unit of the City of Springfield, Missouri that provides electric, natural gas, water, transportation and telecommunication services to the city. The largest of the utility services is the electric system, which serves 111,214 customers. The water system had historically operated separately from the combined electric, natural gas and transportation system, but was consolidated into City Utilities in 2009. For the combined system, residential and commercial sales are approximately equal, at 38% and 44% of revenues, respectively.

The series 2015 refunding bonds are expected to fully refund City Utilities' outstanding public utility revenue bonds (only series 2006 outstanding). The refunding will not extend maturity of the debt. The primary purpose of the refunding is to remove the bullet payment at maturity of the series 2006 bonds and provide the utility with level debt service. In addition, the refunding will provide cost savings, while also removing the DSRF.

GENERATION CAPACITY & WATER SUPPLY

City Utilities' electric system is vertically integrated and the majority of power supply comes from owned generation. Combined gross generating capacity of 1,121 megawatts (MW) is more than sufficient to meet the utility's gross peak 2014 demand of 775 MW and 12% reserve requirement. Fitch believes the utility will be able to leverage its long power supply position to meet future load growth, summer peaks, and more easily meet potential changes in environmental legislation.

Exposure to coal-fired generation is significant, at 77% of the utility's 2014 energy mix. A heavy reliance on coal is typical for utilities in this region of the U.S., given the proximity to Powder River Basin coal supplies. The coal supply is low-sulfur coal, which emits fewer pollutants when combusted than other coal types and puts the utility in a good position to comply with certain environmental standards.

The utility has an ample and diverse water supply through 2040 from six sources: Fellows Lake, McDaniel Lake, James River, Fulbright Spring and two deep wells supplemented by pumping from Stockton Lake as needed. The water system has sufficient treatment capacity of 68.4 million gallons per day (MGD) as compared to its peak demand of 42.8 MGD in fiscal 2014. Ongoing improvements at the Blackman Water Treatment Plant are expected to increase treatment capacity to 72 MGD in fiscal 2015.