OREANDA-NEWS. Fitch Ratings has affirmed the 'F1+' rating on the City of Gainesville, Florida's $85 million utilities system tax-exempt commercial paper (CP) notes program series C issued for the Gainesville Regional Utilities (GRU).

SECURITY

The CP notes are secured by an interest in the net revenues of GRU that is subordinate to the security interest securing senior lien indebtedness.

KEY RATING DRIVERS

SOLID LIQUIDITY AND STRONG RATINGS: The 'F1+' rating on the tax-exempt CP note program reflects GRU's long-term rating ('AA-', Stable Outlook), as well as its diverse liquidity sources, including ample cash reserves, and an $85 million revolving credit facility provided by Bank of America NA (IDRs rated 'A+/F1').

COMBINED UTILITIES SYSTEM: GRU is a combined utilities system providing retail electric, gas, water, wastewater and telecom services to the city of Gainesville, FL and surrounding areas. Electric is the largest system, accounting for about 59% of total revenues. Electric rates are at the upper level of state public power systems, while other system rates are generally more competitive. Each system is financially stable and has no customer concentration.

HEALTHY DEMOGRAPHICS: The combined system provides a diversity of services to and around the city and the University of Florida (50,000 students), which helps anchor the service area. Positive economic indicators, including steady population growth, new business development, and per capita income and employment rates that compare well with state and national averages, are viewed favorably.

OVERHANG OF BIOMASS PROJECT: GRU's contractual commitment to purchase capacity and output of a costly, privately-owned biomass facility (Gainesville Regional Energy Center [GREC]), under a 30-year purchase power agreement, has resulted in higher electric rates, placed downward pressure on financial ratios and added to surplus capacity. Implementation of an aggressive action plan, including reaffirmation of historical financial targets, appears to have stabilized financial metrics and provided support for GRU's current ratings.

RATING SENSITIVITIES

RATING DOWNGRADE: Gainesville Regional Utilities' inability to maintain a long-term rating of at least 'A+' and robust liquidity metrics could result in a lowering of the short-term rating to 'F1'.

CREDIT PROFILE

GRU provides retail electric, gas, water, wastewater, and telecom service to a total of 263,000 utility system customers. The city of Gainesville, FL (non-ad valorem bonds rated 'AA-'; Stable Outlook) is home to the University of Florida, one of the largest state universities in the country. The electric system is the largest of the combined systems. While retail electric service is not directly provided to the state university, GRU offers a diverse mix of utility services to consumers in the Gainesville urban area including the city and the surrounding unincorporated area.

AMPLE LIQUIDITY SOURCES

The utility maintains two CP programs totaling $110 million; $85 million of authorized tax-exempt CP ($51.5 million outstanding) and $25 million of authorized taxable CP ($8 million outstanding; not rated by Fitch).

The 'F1+' rating reflects ample internal liquidity, including monies in a rate stabilization fund, totaling approximately $112 million, in addition to supporting credit agreements with Bank of America equal to $85 million for the tax-exempt CP and $25 million for the taxable CP, both of which extend through Nov. 30, 2018.