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

--\$6.17 million 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 comprised of a single taxpayer - the Manchester Street Station power plant (the plant) owned by a subsidiary of Dominion Resources. Legal provisions also include a debt service reserve fund cash funded at 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 assuming no major operating interruptions, mitigating revenue risk associated with future tax appeals.

REVENUES INSULATED FROM CITY BANKRUPTCY: Although a city bankruptcy is not expected (Fitch rates Providence's general obligation (GO) bonds 'BBB'/Outlook Negative), 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 (equal to 49% of fiscal 2015 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 continue to provide sufficient coverage of maximum annual debt service (MADS) 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 future special tax assessment amounts of \$5.2 million for fiscal 2012 through final maturity of the bonds on June 1, 2016. Coverage on MADs of \$3.74 million is 1.34x from the defined special tax assessments. Debt service declines to \$2.9 million in fiscal 2016. The city has no plans to issue additional debt under this security and is currently constrained in doing so under the additional bonds test.

The consent judgment states that the city shall neither increase the tax assessments nor assess any additional property tax as a result of any improvement to Dominion's property unless such improvement exceeds \$25 million and increases the nameplate capacity of the power plant by at least 20%.

RESERVE FUND MITIGATES POTENTIAL LOSS OF THREE UNITS
There is language in the consent judgment requiring a reduction in assessments if one or more of the plant's three operating units are shut down for a period of 12 months or more. The consent judgment calls for a \$1 million reduction in taxes due for each non-operating unit for the following fiscal year after shutdown.

Fitch-designed stress tests demonstrate avoidance of default with the prolonged loss of three operating units, from a combination of reduced tax assessments and a partial use of debt service reserve funds during the final year of maturity. However, Fitch has no knowledge of the shutdown of operating units for a consecutive monthly period during this current fiscal year and therefore full payment of the special tax assessments would be due next fiscal year.