OREANDA-NEWS. Fitch Ratings affirms the following city of Providence, RI (the city) tax increment financing (TIF) revenue bonds:

--$2,725,000 outstanding special obligation tax increment refunding bonds, series E, at 'BBB+'.

The Rating Outlook is Stable.

SECURITY
The bonds are special obligations of the city payable solely by a lien on and pledge of net tax increment revenues generated within the TIF district. The district is comprised of a single taxpayer, the Manchester Street Station power plant (the plant), which is owned by a subsidiary of Dominion Resources. Legal provisions also include a debt service reserve fund, currently funded at $1.84 million (10% of par).

Pursuant to the bond indenture, the mayor will seek appropriation for any required replenishment of the debt service reserve fund.

KEY RATING DRIVERS

SINGLE INVESTMENT-GRADE TAXPAYER: A strong history of tax increment payments by a single taxpayer, a subsidiary of Dominion Resources (senior unsecured debt rated 'BBB+'/Outlook Stable by Fitch), is a primary driver for the rating.

TAX PAYMENT AGREEMENT SUPPORTS SATISFACTORY COVERAGE: Court-defined tax payments by the power plant provide satisfactory debt service coverage through bond maturity (June 1, 2016) assuming no major operating interruptions.

REVENUES INSULATED FROM CITY BANKRUPTCY: Although a city bankruptcy is not expected (Fitch rates Providence's general obligation (GO) bonds 'BBB-'/Outlook Stable), Fitch would not expect tax increment revenues supporting the bonds to be subject to disruption or diversion in the event of a bankruptcy filing by the city in accordance with the definition of special revenues under Chapter 9 of the U.S. bankruptcy code.

NO RATING ENHANCEMENT FROM MORAL OBLIGATION: The moral obligation does not inform the TIF rating given Fitch's lower GO rating on the city and a reserve fund requirement of less than annual debt service.

RATING SENSITIVITIES

CHANGE IN DOMINION'S RATING: Maintenance of Dominion's credit quality and continuation of timely tax payments is a key rating factor.

CREDIT PROFILE

SINGLE INVESTMENT-GRADE TAXPAYER
The TIF district includes one piece of property owned by Dominion Energy Manchester Street, Inc., the 495-megawatt combined cycle natural gas-fired Manchester Street Power Station. The plant and associated facilities were constructed in 1995. In addition to local power production, the plant produces steam for industrial use.

TAX PAYMENT AGREEMENT SUPPORTS SATISFACTORY COVERAGE
Tax increment payments provide sufficient coverage of annual debt service on the bonds. The city and Dominion, pursuant to a consent judgment issued by the superior court of the state of Rhode Island, have agreed to special tax assessment amounts of $5.2 million for fiscal 2012 through final maturity of the bonds on June 1, 2016. The final debt service payment equals $2.9 million and management reports that tax payments have been received by the city from Dominion. A debt service reserve fund is cash funded at $1.84 million. The city has no plans to issue additional debt under this security.