Fitch Downgrades GRU $1.5 billion credit rating
Fitch Ratings Downgrades $1.5 Billion of GRU Outstanding Debt; Very High Leverage Cited as Basis for Fitch Downgrade; GRU Management Fails to Disclose
Fitch Downgrade in Response to a Direct Question During Televised UAB Meeting
GAINESVILLE, FL., March 16, 2019 – Former Florida Public Service Commissioner and GRU customer
Nathan A, Skop issued the following statement regarding the Fitch downgrade of Gainesville Regional
Utilities (“GRU”) related utility system revenue bonds; the Fitch basis for the downgrade; the failure of GRU
management to affirmatively disclose the Fitch downgrade (i.e., material omission) in response to a direct
question from Mr. Skop during a televised Utility Advisory Board (“UAB”) meeting; the inconsistencies contained within the GRU management discussion of the Fitch downgrade; and the potential adverse financial impact of the Fitch downgrade on GRU customers.
Fitch Downgrade of GRU Related Debt
On March 13, 2019, Fitch Ratings downgraded approximately $1.5 billion of outstanding utility system
revenue bonds related to GRU. A true and correct copy of the Fitch Rating report is attached herein as
Enclosure 1 (omitted for brevity). The downgrade of the outstanding utility system revenue bonds to ‘A+’ from ‘AA-‘ mirrored the ‘A+’ rating that Fitch assigned to the 2019 Series A bonds ($159 million), 2019 Series B bonds ($27 million), and 2019 Series C bonds ($68 million) scheduled for issuance by the city of Gainesville, FL. The
Gainesville City Commission is expected to vote to approve the 2019 Series C bond issuance during the regular City Commission meeting on March 21, 2019.
As of the date of this press release, the City of Gainesville has not posted the Agenda for the City Commission meeting on March 21, 2019.
Accordingly, the general public remains in the dark about the Fitch downgrade and the details surrounding the controversial and ill-advised 2019 Series C debt refinancing scheme which has been opposed by numerous
GRU customers, the UAB Chairwoman, and the UAB Vice Chair. 2019 Series C Bond Issuance Instead of paying off existing debt and retiring it as it reaches maturity (2019-2025) over the next few years, the proposed 2019 Series C bond transaction seeks to refinance $68 million of debt for another 30 years by issuing variable interest rate bonds in a rising interest rate environment at a greater total borrowing cost to GRU customers. Refinancing the $68 million in debt will cost GRU customers at least $114 million over the next 30 years (nearly double the amount of debt being refinanced). The proposed transaction reduces debt service obligations in the near term at a greater total borrowing cost to GRU customers. Despite the
Fitch downgrade, GRU is kicking the growing can of debt further down the road at great total borrowing cost to GRU customers. The proposed 2019 Series C debt refinancing scheme (in the wake of the 2012 debt restructuring scheme used to hide the true rate impact of the biomass contract) is another bad deal for GRU customers. “Taking GRU even deeper into debt to fund the General Fund Transfer (“GFT”) is fiscally irresponsible”, said Mr. Skop. If the GFT is reduced as proposed by GRU, there is absolutely no reason whatsoever to take GRU even deeper into debt as evidenced by the Fitch downgrade of GRU related debt due to very high leverage. GRU customers should oppose this ill-advised debt restructuring scheme which is coming before the Gainesville City Commission for approval on March 21, 2019.
Fitch Basis for Downgrade As expressly stated in the Fitch Ratings report dated March 13, 2019, very high leverage was the Fitch basis for downgrading the GRU related debt:
‘VERY HIGH LEVERAGE BASIS FOR DOWNGRADE”
“Despite a gradual decline in total debt over the past few years, GRU's leverage profile is very high and a main credit
weakness for the utility. As of fiscal-end 2018, GRU had about $1.6 billion of total debt outstanding and $93 million of outstanding commercial paper. A portion of the 2019 bond proceeds will be used to repay outstanding CP with long term debt, leaving total debt outstanding relatively unchanged.
Nevertheless, leverage, as measured by net adjusted debt to adjusted FADS, has been elevated for many years before rising to a very high 11.0x in fiscal 2018.”
GRU Management Failed to Disclose Downgrade in Response to Direct Question
During the UAB meeting held March 14, 2019, former state utility regulator Skop asked GRU management
a direct question relating to the proposed 2019 Series C bonds. Specifically, Mr. Skop asked,
“Mr. Bielarski, with respect to the staff recommendation for the proposed Series C 2019 issuance,
can you affirmatively guarantee that if GRU moves forward with this, that GRU debt or credit will
NOT be downgraded. Yes or No?”
Reference: UAB meeting video at 2:00:24 to 2:03:02:
Just say NO! (UAB meeting video at 2:50:00 to 2:53:15)
Kicking the Can of Debt Down the Road (UAB meeting video at 56:30 to 58:00)
Despite having ACTUAL knowledge that Fitch downgraded GRU related debt on March 13, 2019, GRU management failed to disclose the Fitch downgrade in response to the direct question asked by Mr. Skop. The material omission by GRU was also NOT corrected by the UAB Chairwoman who had ACTUAL
knowledge of the Fitch downgrade.
This assertion is clearly supported by the attached public records. On March 14, 2019, GRU (Bielarski)
sent an email to the Gainesville City Commission and UAB members regarding the Fitch downgrade at
10:01:07 AM (prior to the UAB meeting at 5:30 pm). A true and correct copy of the GRU e-mail is attached
herein as Exhibit A. The UAB Chairwoman subsequently forwarded the GRU email relating to the Fitch
downgrade to her Gmail account at 11:49:47 AM. A true and correct copy of the GRU e-mail that was forwarded to the Gmail account is attached herein as Exhibit B. The general public (including myself) had absolutely NO knowledge of the Fitch downgrade e-mail until AFTER the UAB meeting, because the Commission and UAB e-mail is NOT posted on the Commission website until after 11 pm on any specific day. Accordingly, GRU management knowingly failed to disclose and concealed the Fitch downgrade in response to the direct question asked by Mr. Skop. The UAB Chairwoman also failed to correct the material
omission made by GRU management (Bielarski, Resnick).
As of the date of this press release, the general public remains in the dark about the Fitch downgrade necessitating the issuance of this press release to illustrate how GRU management knowingly failed to
disclose and concealed the Fitch downgrade in response to the direct question asked by Mr. Skop at the
Inconsistencies in GRU Management Discussion of Fitch Downgrade
Exhibit A (omitted here) provides the GRU management discussion of the reason for the Fitch downgrade. The Fitch report expressly stated that the basis for the downgrade was “VERY HIGH LEVERAGE BASIS FOR
DOWNGRADE”. GRU management, however, attributes the downgrade to a change in Fitch rating criteria.
The Fitch report is completely devoid of any mention that the downgrade resulted from a change in the
Fitch rating criteria. In response to a prior representation made to the Gainesville City Commission by GRU
management and PFM related to a utility downgraded under the alleged rating criteria change, GRU and
PFM, despite two public records requests, could not provide the name of the utility to support their assertion.
Accordingly, the GRU explanation of the downgrade is NOT supported by the content of the Fitch report.
Based upon the above, local media should provide Fitch Ratings with copy of the GRU management e-mail
attached herein as Exhibit A to fact check this inconsistency and determine whether Fitch agrees with Mr.
Bielarski’s assertion that the downgrade resulted from an actual change to the Fitch rating criteria as
opposed to GRU being taken even deeper into debt despite already being very highly leveraged.
GRU management also attempts to downplay the significance of Fitch downgrade within the Exhibit A
discussion noting that S&P and Moody’s affirmed 2019 Series A and 2019 Series B bond issuance. The KEY difference not mentioned by GRU management, however, is that Fitch actually rated the 2019 Series A, 2019 Series B, and the 2019 Series C bonds (assigning the same ‘A+’ ratings as the downgraded GRU debt) while S&P and Moody’s did NOT rate the proposed 2019 Series C bond issuance.
Potential Adverse Financial Impact of Fitch Downgrade on GRU Customers
GRU management and the Gainesville City Commission have routinely stated that a downgrade would cost GRU customers millions of dollars of additional borrowing cost each year. In 2012, GRU management and the Gainesville City Commission expressed concern over the financial impact of a downgrade claiming that
GRU had saved $64 million in interest rates over the last decade because of GRU’s then higher creditratings. Since 2012, GRU has been downgraded at least three times while nearly doubling the amount of outstanding debt. Undoubtedly, the Gainesville City Commission will now conveniently claim that the Fitch downgrade doesn’t matter as they take GRU even deeper into debt to siphon more money out of the utility
irrespective of the financial harm to GRU and its customers. Ironically, the Gainesville City Commission is quick to raise GRU rates but refuses to give up their catered meals at taxpayer expense and govern in a fiscally responsible manner. “The problem is not GRU’, Skop added, “but rather the mismanagement of
our municipal utility at the hands of the City politicians”.
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Nathan A. Skop, Esq.
Florida Public Service Commission
Phone: (352) 363-1455