Fitch Ratings Affirms Virgin Islands Power Revs At 'BBB'

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    NEW YORK--(BUSINESS WIRE)--March 27, 2003--Fitch Ratings affirms the 'BBB' rating on the Virgin Islands Water and Power Authority's (WAPA) $100,000,000 electric system revenue bonds. The Rating Outlook is Stable. The affirmation is in anticipation of WAPA's $70 million bond issuance expected to price in April 2003. Proceeds will be used to fund certain capital improvements including upgrades to the transmission and distribution system, adding new generating capacity on St. Thomas and St. Croix, and paying down lines of credit. Public Financial Management is the financial adviser and Salomon Smith Barney is senior manager.     The rating affirmation reflects WAPA's historically good financial performance, adequate liquidity, a favorable fuel contract, improving system reliability, and stable economic growth, which is tied to the US Virgin Island's (the Island) tourist economy. Despite initial concerns stemming from the events of Sept. 11, 2001, the Island's tourism business continues to grow. Another positive factor is WAPA's good relationship with the Virgin Islands Public Service Commission (PSC), evidenced by the PSC's recent approval of WAPA's rate case effective April 1, 2003. The order includes the approval of WAPA's upcoming debt issuance, a rate increase that allows management to maintain annual debt service coverage above 1.75 times (x), a surcharge for payments in lieu of taxes, and other reclassifications of charges.     Financial results for fiscal year 2002 were stable with debt service coverage at a solid 1.86x. Adequate liquidity in the event of short-term financial disruptions is provided by about $18 million cash reserves, FEMA reimbursements, and self insurance funds. Additional liquidity of about $18 million will be available in the form of lines of credit with two local banks after the WAPA's planned financing.     Credit risks center on WAPA's accounts receivables associated with the government's delinquent payments, a dependence on a single fuel (oil) for generation, the economy's reliance on tourism, and the potential for future hurricane damage. While there has been significant improvement in reducing the United States Virgin Island government's (USVI) delinquent payments to WAPA, this issue remains a concern. The USVI's delinquent bills are about $7 million of WAPA's electric system accounts receivables (6% of revenues), an improvement from a high of about $14 million in 1999.     The 'BBB' rating also takes into account current world events that could adversely affect air travel to the USVI, and fuel supply to the Island. Through a favorable contract that extends to 2022, WAPA purchases its fuel oil from HOVENSA (formerly Hess Oil Virgin Islands Corp. prior to entering into a joint venture with Petroleos de Venezuela, S.A. of Venezuela) which operates the Western hemisphere's largest petroleum refinery on the island of St. Croix. HOVENSA receives crude oil from various locations, but primarily Venezuela. In the event that HOVENSA loses its Venezuelan supply (which was sharply reduced earlier this year) and reduces production, they remain obligated to serve WAPA first. In the unlikely event that HOVENSA were to stop production, WAPA would purchase oil from the world markets. Fitch believes that WAPA has an adequate risk management program including an emergency response program that addresses this issue.     While hurricanes and the resultant damage remains a risk, system replacements and improvements over the past several years have significantly strengthened the system's infrastructure. In addition, access to financial assistance from the Federal Emergency Management Agency (FEMA) continues to provide bondholders with credit support in the event of future hurricanes, as does a long-term hazard mitigation program that reimburses 50-90% of eligible costs related to projects designed to mitigate future storm damage.     WAPA is virtually the sole electricity provider for the US Virgin Islands. WAPA's power system serves approximately 50,000 customers with sales consisting of 33% residential, 20% commercial, 43% industrial, and 4% other. The system is governed by a 9-member board and operates autonomously from the Virgin Islands Government.

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CONTACT: Fitch Ratings, New York
         Karl Pfeil, III 212/908-0516  
         Alan Spen, 212/908-0594
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KEYWORD: NEW YORK INTERNATIONAL LATIN AMERICA
INDUSTRY KEYWORD: BANKING BOND/STOCK RATINGS
SOURCE: Fitch Ratings