Fitch Upgrades Sacramento Muni Utilities District (CA) Supported Project Revenue Bonds

Fitch Ratings upgrades the following ratings assigned to four joint power agencies (JPAs) utilized by the Sacramento Municipal Utility District (SMUD; rated 'AA-'; Stable Outlook by Fitch):

--$29,115,000 Central Valley Financing Authority (CVFA) series 2009 cogeneration authority revenue refunding bonds to 'AA-' from 'A+';

--$40,120,000 Sacramento Cogenerations Authority (SCA) series 2009 cogeneration authority revenue refunding bonds to 'AA-' from 'A+';

--$233,155,000 Sacramento Municipal Utility District Financing Authority (SFA) series 2006 Cosumnes project revenue bonds to 'A' from 'A-';

--$71,280,000 Sacramento Power Authority (SPA) series 2005 cogeneration project revenue refunding bonds to 'A' from 'A-'.

The Rating Outlook is Stable for the above bonds.

SECURITY

The CVFA and SCA bonds are secured by unconditional 'take-or-pay' payments made by SMUD under the Power Purchase Agreements (PPAs).

The SFA and SPA bonds are secured by monthly capacity and energy payments by SMUD under the PPAs on a 'take-and-pay' basis which are subject to reduction and/or termination if the respective plants fail to meet certain performance parameters.

KEY RATING DRIVERS

SOLID PROJECT OFFTAKER: The rating upgrade for each of the four JPAs reflects the solid credit strength of the 100% project off-taker, SMUD, whose long-term rating was upgrade by Fitch to 'AA-' from 'A+' on Dec. 15, 2014.

STRONG CONTRACTUAL PROVISIONS: Two of the projects, CVFA and SCA, are rated on parity with SMUD due to the take-or-pay nature of the PPAs which obligate SMUD to pay all project related costs (including debt service), regardless of plant operating performance.

PLANT PERFORMANCE RISK: The ratings for SFA and SPA are two notches below SMUD's rating due to structural mechanics which expose bondholders to plant operating risk. Specifically, SMUD is able to reduce capacity payments in the event the project operates below certain parameters and terminate payments in the event of severe and persistent underperformance. Fitch notes that the SFA/SPA units have consistently exceeded performance requirements by a comfortable margin since entering commercial operations.

INTEGRAL POWER RESOURCE: The four natural gas-fired plants financed through the JPAs represent a core component of SMUD's overall power supply strategy (approximately 50% of total generating resources). Each of the plants exhibit superior operating performance and represent important contributors to SMUD's renewable strategy due to the increasing use of biogas as a fuel source.

RATING SENSITIVITIES

CHANGE IN OFF-TAKER RATING: The long-term rating on the JPA bonds will continue to be directly linked to the credit quality of SMUD. However, Fitch notes that future upward direction in the ratings for SPA and SFA could be limited given bondholders' continued exposure to performance risk in these projects.

PLANT OPERATING PERFORMANCE: A material change in the operational performance of the SPA and/or SFA units could result in negative rating action.

CREDIT PROFILE

SMUD is an integrated electric utility providing electric service to more than 613,000 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.

For further information, please refer to Fitch's press release for SMUD, dated Dec. 15, 2014, available on 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. Public Power Rating Criteria' (March 18, 2014);

--'US Public Power Peer Study' (June 13, 2014).

Applicable Criteria and Related Research:

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=740841

U.S. Public Power Peer Study -- June 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710397

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=958735

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