OREANDA-NEWS. Fitch Ratings has affirmed the 'F1' Short-term rating assigned to the South Carolina Public Service Authority (Santee Cooper) $750 million commercial paper notes, taxable and tax-exempt.

SECURITY

The notes are payable from a lien on system revenues junior to the lien and pledge securing: i) revenue obligations and ii) expenses of operating and maintaining the system, but prior to the payments into the capital improvement fund.

KEY RATING DRIVERS

WHOLESALE POWER PROVIDER: Santee Cooper is one of the nation's largest municipal wholesale electric systems, serving either directly or indirectly nearly one-third of the state of South Carolina.

SUPPORT PROVIDED BY LONG-TERM RATING AND LIQUIDITY: Santee Cooper's 'A+' long-term credit rating and various sources of liquidity support the 'F1' rating on its CP program. Total internal and external liquidity sources provide coverage of maximum potential requirements that are well in excess of Fitch's target for 'F1' short-term ratings.

STABLE FINANCIAL RATIOS: A major construction and financing program relating to the Summer nuclear project has pressured financial ratios and previously resulted in a downgrading of Santee Cooper's bonds. Financial ratios remain well below historical levels, but appear to have stabilized. The authority's long-term financial model is based on senior-lien debt service coverage (DSC) of 1.50x, but can fall below this level during periods of major capital investment.

RATING SENSITIVITIES

RATING STABILITY: The strength and stability of Santee Cooper's long-term credit rating ('A+'/Stable Outlook), coupled with its healthy liquid resources, should continue to support the 'F1' rating on the commercial paper program.

CP PROGRAM

As of Dec. 31, 2015, there was $597,520,000 of commercial paper notes outstanding. The board has approved a resolution that the issuance of commercial paper notes will not exceed 20% of the authority's aggregate debt outstanding, allowing for certain provisions.

To obtain funds if needed to repay the commercial paper notes, the authority has entered into revolving credit agreements with several financial institutions. The sum of these agreements totals $750 million, with U.S. Bank National Association, Wells Fargo Bank, National Association, JP Morgan Chase Bank, National Association, Bank of America, N.A. and TD Bank, N.A. Expiration dates range from August 18, 2017 to November 27, 2018. Total available liquid resources divided by maximum potential liquidity requirement is sufficient to meet Fitch's requirement for an 'F1' rating.

The authority has also entered into a separate revolving agreement (Direct Purchase Revolving Credit Agreement) with Barclays Bank PLC. The agreement allows the authority to borrow up to $200 million and expires on November 27, 2019. There were no draws under this facility at year end 2015.

Financial Performance

Fitch calculated DSC of Santee Cooper for calendar year 2014 was 1.52x. Preliminary results for calendar year 2015 show net operating income approximately 2% below budget, primarily due to lower than expected energy sales and demand usage. For 2016, Santee Cooper projects DSC (Excluding CP and prior to required distributions to the state and payments in lieu of taxes to local governments) of 1.52x, and DSC (Including CP and after payments to the state and local governments) at 1.43x. Ratios tend to dip slightly during heavy construction periods, but Santee Cooper's long-term DSC goal remains at 1.50x.