Fitch Rates Sacramento Municipal Utility District's $200MM 2008J & K Sub Revs 'A'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an underlying 'A' rating to Sacramento Municipal Utility District's (SMUD) approximately $120 million, 2008 series J and $80 million, series K variable-rate subordinate electric revenue refunding bonds. The 2008 J and K bonds will be assigned enhanced ratings based upon the provision of a letter of credit (LOC) from Bank of America N.A. Fitch expects to provide the LOC enhanced ratings nearer to closing, which is currently scheduled for approximately Aug. 14, 2008..

Fitch has also affirmed the 'A' ratings on the following outstanding debt ratings for SMUD:

--$1.9 billion senior lien electric revenue bonds;

--$182.5 million parity subordinated electric revenue bonds.

The Rating Outlook is Stable.

SMUD's 'A' credit rating is supported by:

--Competitive electric rates;

--A reasonable power supply strategy

--Sound financial and risk management practices; and

--A favorable customer base.

SMUD is also ahead of the curve, relative to many utilities in the state, with respect to meeting established renewable energy resource goals, reducing their carbon footprint, and meeting energy efficiency targets

Credit concerns center around challenges ahead for SMUD over the next five years, including:

--Cost-effective replacement of expiring long term power purchases between 2008-2012 (representing 19% of total power supply);

--Funding a large capital program; and

--Maintaining solid financial performance measures, given likely slower sales growth in the near term.

The slower sales growth is a function of the economic downturn triggered by the residential mortgage and credit crisis.

Prospectively, debt service coverage of full obligations, which includes debt service for off-balance sheet debt related to four local-gas-fired plants and the Transmission Agency of Northern California, will remain in the 1.3 times (x)-1.5x range as per SMUD board policy and in-line with other Fitch 'A' rated retail utility systems. Unrestricted cash reserves are projected to fall below historic levels, but will remain adequate for the rating category. Equity-to-total-capitalization, at 15% for fiscal year end 2007, will remain relatively flat until at least 2011.

Fitch will be monitoring the SMUD and the Board's willingness to take appropriate rate actions during this period of increased cost pressures. In addition, SMUD's long standing general manager is retiring this year. SMUD's board of directors recently appointed John DiStasio (former Assistant General Manager - Customer Services) to the position of General Manager in June. Mr. DiStasio has worked in various capacities at SMUD since joining in 1981. Fitch views his appointment as the new GM as a neutral credit factor at this time

Additional information is available in Fitch's most recent report on SMUD, dated May 27 and available at www.fitchratings.com.

SMUD is a municipal retail utility providing electric service to approximately 589,600 primarily residential, commercial and governmental users, in the state capital of Sacramento.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.