OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to the following bonds issued by Sacramento Municipal Utility District Financing Authority (SFA):

--\$233,000,000 Cosumnes Project revenue refunding bonds, series 2015.

The bonds are expected to price on April 22, 2015.

In addition, Fitch affirms the 'A' rating assigned to SFA's outstanding \$233 million series 2006 Cosumnes Project revenue bonds. The series 2006 bonds are expected to be refunded in their entirety with proceeds from the series 2015 issuance.

The Rating Outlook is Stable for the above bonds.

SECURITY

The series 2015 bonds will be secured by payments to be made by SMUD pursuant to a 'take-or-pay' power purchase agreement (PPA) for all capacity, energy, and environmental attributes of the Cosumnes Project.

KEY RATING DRIVERS

SOLID PROJECT OFFTAKER: The rating for the series 2015 bonds reflects the credit quality of timely payments from SMUD (electric revenue bonds rated 'AA-'/Outlook Stable by Fitch), the sole offtaker for the Cosumnes Power Project.

STRONG CONTRACTUAL PROVISIONS: The series 2015 bonds are rated on parity with SMUD's electric revenue bonds reflecting the planned execution of a new power purchase agreement (PPA) between SFA and SMUD under which SMUD will be obligated on a take-or-pay basis to pay all project related costs (including debt service), regardless of plant performance.

INTEGRAL POWER RESOURCE: The Cosumnes plant represents a core component of SMUD's overall power supply strategy. In particular, the plant represents approximately 15% of SMUD's capacity resources and is expected to generate 27% of total energy requirements during 2015. Historical performance at Cosumnes has been solid with the plant achieving an average capacity factor of 85% over the five-year period 2010-2014.

SERIES 2006 BONDS UNAFFECTED: The affirmation of SFA's outstanding series 2006 bonds reflects the existing take and pay PPA between SFA and SMUD which remains in place until such time the series 2006 bonds are refunded in their entirety (expected to occur on or about June 1, 2015). The series 2006 bonds are rated two notches below SMUD's rating due to structural mechanics under the existing PPA which expose bondholders to plant operating risk.

RATING SENSITIVITIES

CHANGE IN OFF-TAKER RATING: The long-term rating on the SFA bonds will continue to be directly linked to the credit quality of SMUD.

CREDIT PROFILE

SMUD is an integrated electric utility providing electric service to more than 600,000 primarily residential, commercial and governmental users in Sacramento, CA and a small portion of adjoining Placer County. SMUD is the sixth largest public power retail system in the U.S., in terms of the number of customers served.

SMUD receives power from five local natural gas-fired plants that are financed off balance sheet through the four joint power agencies (JPAs) which in addition to SFA, include the Central Valley Financing Authority, Sacramento Power Agency, and Sacramento Cogeneration Authority. Each of the JPAs share common traits in that they have no employees of their own and reimburse SMUD for actual fuel, administrative and general expenses. The JPAs also share the same board of directors as SMUD. While each JPA is a separate legal entity, given the strong operational and financial relationship with SMUD, the financial results of the JPAs are consolidated with those of SMUD.

COSUMNES POWER PROJECT

SFA is a JPA formed by SMUD and the Modesto Irrigation District to own and operate the Cosumnes Power Project and related facilities. The project, which began commercial operations in 2006, is a 495 MW gas-fired combined-cycle generation plant. Although Cosumnes accounts for about 15% of SMUD's total resource mix on a capacity basis, it supplies up to 30% of SMUD's ongoing energy highlighting its competitive position in the supply mix.

SMUD has historically purchased the entire output of the plant through a take-and-pay PPA but was not obligated to pay debt service if the plant did not meet specific performance requirements. The plant continues to exceed these requirements by a very comfortable margin with availability factors (as defined in the PPA) at or near 100%.

The pending refunding will convert the off-take agreement with SMUD to a take-or-pay PPA obligating SMUD to pay all project related costs (including debt service on the series 2015 bonds) whether or not the plant is operable, operating, or retired. Payments under the PPA constitute O&M expenses of SMUD, payable prior to debt service on the district's electric revenue bonds, and SMUD has covenanted to set rates in an amount sufficient to meet its obligations under the PPA.