ANDALUSIA, ALA. – Two major credit agencies have raised PowerSouth’s rating from a BBB+ to an A-, a step that will provide significant financial savings for PowerSouth and its members.
“The rating increase will have a positive impact on PowerSouth’s standing in the financial community,” said Ferrell Walton, PowerSouth Vice President and Chief Financial Officer. “There is a world of difference in financial markets between an A and a B rating.”
Walton said the rating will reduce PowerSouth’s interest rates on current borrowings of variable-rate mode debts and would definitely have a significant effect on future borrowings, particularly bonds.
“Being upgraded to an A- is a major step,” he said. “It puts us in a whole new bracket. Few entities are being upgraded in this current market.”
According to Standard & Poor’s March 31 RatingsDirect report, the higher rating reflects the PowerSouth Board’s intent to raise wholesale rates to fund a portion of future capacity, and provide a level of debt service coverage and fixed charge coverage. Also a factor in the higher rating is S&P’s assessment of an improving regional economy.
“Although the recession has slowed growth, there has been and, we believe, will continue to be an overall strengthening of the southern Alabama and the northwest Florida economies that PowerSouth member cooperatives serve,” noted the report.
S&P noted that PowerSouth’s utility operations are strong and that its wholesale rates to members are competitive with other public power suppliers in the region, along with competitive member retail rates, considering their low-density service areas and lack of commercial and industrial loads.
Other elements in PowerSouth’s favor are competitive power supply and comprehensive risk management, its self-supporting propane business, and all-requirements contracts through 2050.
Fitch Ratings also noted PowerSouth’s all-requirements contracts, as well as improved financial performance as a result of increased cash flow, liquidity and equity targets.
According to Fitch, greater clarity associated with PowerSouth’s power resource plan with a good mix of owned and purchased power, as well as a diversification of fuel sources also contributed to the higher rating.
“The improvement in the rating is a very important event that will lower PowerSouth’s cost of financing in the future and will provide savings in wholesale power costs,” said Gary Smith, PowerSouth President and CEO. “PowerSouth employees should be commended for developing a plan to improve the financial rating and having the resolve to execute the plan. PowerSouth’s Board of Trustees and distribution members should be commended for providing the unity and support for PowerSouth that is critical to a financial rating increase, especially in such troubled times.”
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PowerSouth serves the wholesale energy needs of 16 electric cooperatives and four municipal electric systems in Alabama and northwest Florida, with more than a million consumers in 39 Alabama and 10 Florida counties. PowerSouth is dedicated to providing reliable energy at the lowest possible cost to its members.
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Mark Ingram, Corporate Communication Manager
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