DALLAS - Sam Rayburn Municipal Power Agency representatives call a Standard & Poor's Corp. CreditWatch listing on $243 million in revenue bonds an overreaction and they plan to argue against a possible downgrade to junk-bond status in New York City next month.

"The agency is paying bills ... and the agency understands the rates it has to charge its members in the future to pay the bills," said Ralph Gillis, a Boston attorney who is general counsel for the East Texas power agency. "There is no financial crisis."

Gillis made his remarks following the move by Standard & Poor's in mid-December to place the BBB rating on the agency's revenue bonds on CreditWatch with negative implications. The rating agency said it would probably move the bonds to noninvestment grade or BB within the next 60 days after a full presentation of financial and operating alternatives by Sam Rayburn.

"The rating is becoming more speculative," said William Cox, a director at the rating agency's San Francisco office. "It's not that there is a near-term cash crisis. They have ample cash to meet near-term debt service. The problem is by 1996 and the years following that, they will have to put in very high rate increases ... to pay for excess power capacity."

The problem surfaced recently when Sam Rayburn, an agency that sells power to three cities in Texas and one in Louisiana, failed to secure a big contract to sell more than 50 megawatts of electricity to North Little Rock, Ark.

With no other power contracts imminent, ratepayers would have to continue to absorb costs and face increases in rates, already among the highest in the nation.

Standard & Poor's said it placed the power agency on CreditWatch primarily because of the loss of the North Little Rock bid. "It is the straw that broke the camel's back," Cox said. "It my mind, they had to get a contract in the last year."

Cox said Sam Rayburn in 1982 agreed to purchase power from a new Gulf State Utilities plant, with the amount increasing each year to reach 110 megawatts in 1996. The agency based its electricity needs on strong economic on population growth during the oil boom and now has been strapped with much excess power.

When the oil bust occurred in 1986, growth flattened and Sam Rayburn was stuck with excess power that could not be used in the four cities it served - Jasper, Liberty, and Livingston, Tex.; and Vinton, La.

The agency also has had difficulties marketing the excess power because of a surplus of electricity in the southern region of the country. It didn't get the North Little Rock contract because Gulf State Utilities would not agree to offer the municipality a fixed price for half of a 10-year contract, Gillis said.

In the near term, rating agency analysts aren't predicting any big contracts soon.

"I don't think anything is imminent and certainly not the same size as the North Little Rock contract," said Susan Courtney, an analyst with Fitch Investors Service, which rates the Sam Rayburn bonds BBB-minus. "It certainly is not going to be an easy task."

Bob Stanley, a vice president and Southwest regional manager for Moody's Investors Service, also had concerns about the agency's ability to sell excess power. "If they can't sell the excess power, they may price themselves out of the market," he said.

Moody's has assigned the Sam Rayburn debt its lowest investment grade rating of Baa after downgrading the bonds last year when the agency restructured its debt. The restructuring was done to lower future rate increases to customers and make the agency more competitive as it attempted to sell surplus energy.

Moody's, Fitch, and Standard & Poor's will evaluate their ratings after meeting with Sam Rayburn officials on Jan. 17 and Jan. 18, but Standard & Poor's is the only one that has put the bond rating on formal watch.

Jim Gilley, a partner at Coastal Securities in Houston and the power agency's financial adviser, disagreed with Standard & Poor's view. "The CreditWatch connotes a significant change in financial operations in the agency, and that is not true. That has not changed since the refinancing was completed," he said. "Nothing has changed but an expectation of S&P when the city of North Little Rock did not contract with Sam Rayburn for power."

Gilley said Sam Rayburn's financial plan was not contingent on selling excess power for several years. At the time of the refinancing he said the agency developed a backup plan to increase rates to cover higher costs. Although very high, the cities have agreed to pay the rates over the life of the bonds. Debt service is scheduled to increase from $15 million in fiscal 1994 to $21 million in fiscal 1999, Gilley said.

"It's a hell or high water contract," Gilley said. "The cities believe in paying their obligations even if they are not happy with the circumstances," he said.

Under the plan, Cox said Sam Rayburn's wholesale rates would rise about 5.7% a year from 1994 to 2002, making them among the highest in the nation. Currently, the agency charges the cities 6.7 cents per kilowatt hour and that will rise to almost 9.6 cents by the turn of the century and 10.5 cents by 2002.

"These rates are expected to be much less competitive than rates of nearby investor and publicly owned utilities," Standard & Poor's said in a release that accompanied the Dec. 17 CreditWatch action. "Without additional power sales, the agency's rates will be burdensome."

Gillis, Sam Rayburn's general counsel, called the rating agency's remarks an "overreaction" and said the power agency has an aggressive program to market surplus energy. "The market seems to have shifted ... People out there are buying power," he said.

In the future, Gillis expects more regional energy demand as power plants age and the natural gas bubble dissipates.

Some bondholders also said they are not concerned. "Personally, I think the bonds are fine," said Robert Rexford, an executive in the trading department at Oppenheimer & Co. in Houston, which recently purchased some of the bonds. "I think the people in Texas and Louisiana are going to pay their bills," he said.

Others said they have been avoiding the bonds for more than a year.

"We never looked closely at Sam Rayburn. It was not something that fit our credit criteria two years ago," said Neil Conkling, a municipal analyst with USAA in San Antonio.

Conkling said bondholders will find it difficult to sell their bonds if the debt is rated junk because most mutual funds have rules banning the purchase on noninvestment grade debt. "They become irritated because it becomes illiquid," he said. "They can't sell it to anyone except a junk bond dealer."

Nevertheless, bond industry sources said most investors knew the risk. "It's not going to be a great shock," one trader said. "I think investors have known that there are problems with the credit."

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