OREANDA-NEWS. Fitch Ratings assigns an 'AA+' rating to the following Metropolitan Government of Nashville and Davidson County, TN (Metropolitan Government) revenue bonds:

--Approximately \$113 million electric system revenue refunding bonds, 2015 series A.

The bonds are scheduled to price via negotiation on April 21, 2015. Proceeds of the 2015 series A bonds will be used primarily to refund outstanding 2008 series A and B bonds for approximately 8% savings of the refunded par amount.

In addition, Fitch affirms the 'AA+' rating on the Metropolitan Government's outstanding electric revenue bonds totaling \$586 million as of June 30, 2014.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a first lien on net revenues of Nashville Electric Service (NES, or the system). NES is a component unit of the Metropolitan Government.

KEY RATING DRIVERS

LARGE DISTRIBUTION PROVIDER: NES is a large, all-requirements electric distribution customer of the Tennessee Valley Authority (TVA; global power bonds rated 'AAA'/Stable Outlook), pursuant to a 10-year, rolling all-requirements contract.

HEALTHY, STABLE CASH FLOW METRICS: Healthy and stable cash flow metrics include an average of 2.9x debt service coverage and 1.2x coverage of full obligations over the past five years. A history of funding half of capital needs from operations has helped NES maintain manageable debt levels.

IMPROVING LIQUIDITY: Liquidity ratios have improved but remain lower than other highly rated distribution systems. Recent changes to board policy establish higher minimums for cash balances to help manage wholesale rate increases.

COMPETITIVE RATES: Overall retail rates are generally competitive with other large U.S. cities. This, too, provides headroom to manage wholesale rate changes. Moreover, NES' independent board sets the retail resale portion of total rates, which removes a political element of the ratemaking process; TVA ultimately approves the rates.

STRONG SERVICE TERRITORY: The strength and depth of the local economy bolsters NES' overall stability and collections. In addition, a diverse customer base includes a healthy residential contingent and no concentration of largest payers.

RATING SENSITIVITIES

RATING STABILITY: NES' solid financial position and operating profile should continue to support its rating stability for the foreseeable future.

CREDIT PROFILE

LIMITED RISK DISTRIBUTION PROVIDER

NES' direct commodity, power supply, and similar risks of asset ownership are limited as a retail electric distribution provider with no generating capacity of its own. TVA provides all of NES' power pursuant to a 10-year, rolling all-requirements contract.

NES' reliability metrics are broadly improved over a 10-year period and approaching regional averages. Moreover, NES was awarded the American Public Power Association's Reliable Public Power Providers Diamond status for a third time in 2014. The recognition is based on reliability, safety, workforce development, and system improvement.

NES' 28 interchanges with TVA provide significant redundancy to ensure adequate access to power.

SOUND SERVICE TERRITORY

NES' large size and the strength of the local economy contribute handily to its overall stability. Fiscal 2014 allowance for doubtful accounts registering just 0.14% of total operating revenues provides some evidence of this stability.

The area economy fared well over the past several years, given its depth and diversity beyond traditional roots in the country music industry. The unemployment rate, currently at 5.6% (January 2015), remained under 10% in each month of the most recent economic recession.

In addition, NES' customer composition adds stability to its revenue base. Residential customers compose a healthy 43% of energy sales, and there is no concentration of largest payers.

SOLID, STABLE FINANCIAL METRICS

The strength and stability of NES' financial metrics are a key consideration of the system's high credit rating. Debt service coverage has averaged a high 2.9x annually with little variation since fiscal 2010, and similarly strong results are expected in fiscal 2015. Coverage of full obligations averaging nearer to 1.2x is in line with Fitch's 'AA+' rating category medians.

NES twice adjusted its liquidity target in recent years to build cash balances ahead of wholesale rate changes. Liquidity ratios remain below most highly rated retail systems. However, they are much improved at 91 days cash on hand in fiscal 2014 compared to a recent low of 32 days in fiscal 2009. Moreover, the size and stability of the service territory, as well as the limited direct power supply risks, limit total liquidity needs.

NES' generally competitive rates provide headroom to manage wholesale rate increases over the next several years while maintaining healthy financial metrics. The system's total rate is largely determined by the wholesale rate TVA charges.

Projected performance through fiscal 2020 is expected to preserve financial metrics, including debt service coverage and cash on hand, at levels above NES targets and in-line with the current rating.