KBRA Assigns AA Rating to New York Power Authority General Resolution Revenue Bonds; Outlook is Stable
31 Aug 2023 | New York
KBRA assigns a long-term rating of AA to the New York Power Authority's General Resolution Revenue Bonds. The Outlook is Stable. The rating recognizes the established performance of the New York Power Authority’s (“NYPA’s” or “the Authority’s”) low-cost, largely renewable generation mix and growing transmission operations; strong competitive position; independent rate setting ability; and the manageable operating risk associated with its ownership of two large hydropower assets. The rating also reflects the Authority’s solid historical and pro-forma financial performance, characterized by ample liquidity, substantial coverage of debt service and fixed costs, and manageable leverage in advance of a substantial 2023-2026 capital plan. Management’s actions to improve the balance sheet and adhere to debt policies that reduce leverage further inform the rating.
Counterbalancing the aforementioned strengths are NYPA’s highly complex and capital-intensive operating environment; its reliance on variable hydroelectric generation for a significant portion of net income; the potential for utility and non-utility mandates imposed by New York State to create operating, capital or financial obligations to negatively impact the Authority’s financial profile; and the permissive security provisions of the General Resolution.
Key Credit Considerations
The rating was assigned because of the following key credit considerations:
Credit Positives
- Lowest cost power producer in the State with well-maintained, environmentally clean hydroelectric generating assets that account for 70% of the State’s renewable energy.
- Financial strength and resiliency demonstrated through sound operating margins, ample liquidity, strong debt service and fixed cost coverage, and favorably low debt ratios.
- Leverage is expected to remain manageable throughout the capital plan. NYPA’s use of the SFP Transmission Bond Resolution is expected to limit overleveraging of the General Resolution.
- Authority operations benefit from industry-leading enterprise risk management capabilities.
Credit Challenges
- The Authority operates in a complex, capital-intensive environment, requiring management of exposures to energy, capacity, and fuel price volatility, enterprise level and operating risks, merchant sales exposure, decarbonization risks, and regulatory requirements.
- Financial and programmatic obligations, as well as restrictions to the Authority’s powers, rights, and exemptions from regulation under the Power Authority Act can be imposed on the Authority by action of the State Legislature.
- The potential for an increase in the relative cost of producing hydropower, whether due to competing renewable technologies or to generation levels at its large hydroelectric facilities, poses a risk to NYPA’s competitive position and net income.
Rating Sensitivities
For Upgrade:
- Demonstrated success in meeting substantial CLCPA responsibilities, including maintaining its hydropower contribution; decarbonizing its small, natural gas-fired peaker plants by 2030, and ensuring sufficient reliability to meet demand.
- Greater contractual stability with New York City, MTA and NYCHA, the Authority’s largest governmental customers.
For Downgrade:
- A material erosion in NYPA’s hydropower cost advantage that negatively impacts its competitive position.
To access rating and relevant documents, click here.