Fitch Ratings affirms the 'A' rating on Central Iowa Power Cooperative's (CIPCO) implied senior secured obligations.

CIPCO's rating takes into account approximately $323 million of secured debt privately held by lenders including the Federal Financing Bank, Rural utilities Service, National Rural Utilities Cooperative Finance Corp. and CoBank, but is assigned to implied obligations given that none of the outstanding debt is publically held.

The Rating Outlook is Stable.

SECURITY

CIPCO's senior secured obligations are secured by a lien on substantially all of CIPCO's assets.

KEY RATING DRIVERS

FAVORABLE CONTRACTS, STABLE MEMBERSHIP: CIPCO provides power to 12 rural electric distribution cooperatives (RECs) and South Iowa Municipal Electric Cooperative Association (SIMECA) through all-requirement contracts. The REC and SIMECA contracts are long-term through 2045. The members exhibit stable financial operations and average to above-average regional demographics.

LOW-COST, DIVERSE POWER: The cooperative's relatively low-cost power supply is derived primarily from coal and nuclear generation. CIPCO has also entered into a number of wind power purchase contracts, which has helped to diversify its power supply.

CONSISTENTLY STRONG FINANCIAL PERFORMANCE: CIPCO continues its trend of stable financial performance that exceeds peer medians. Healthy metrics are achieved through sound financial policies and targets.

ABOVE-AVERAGE RETAIL RATES: Member cooperative retail rates are generally higher than neighboring utilities, due to the increased cost associated with servicing a rural territory. High retail rates have the potential to limit CIPCO's rate flexibility going forward.

INVESTMENT RISK: A sizable portion of CIPCO's unrestricted funds are held in riskier asset classes, which creates uncertainty in regards to investment returns and market volatility. CIPCO's strong liquidity position is somewhat tempered by this increased risk.

RATING SENSITIVITIES

FINANCIAL MARKET VOLATILITY: A sustained weakness in financial markets and a resulting sizable decrease in the value of CIPCO's unrestricted assets could lead to downward rating pressure.

CREDIT PROFILE

CIPCO is Iowa's largest cooperative energy provider, supplying power to 12 RECs and SIMECA, an association of 15 small municipal electric utilities. The CIPCO members, in turn, provide power through a 300 mile service territory that spans diagonally across central and southern Iowa. The members serve over 121,000 retail customers and a population of approximately 320,000 residents.

The RECs purchase power from CIPCO pursuant to take-or-pay, all-requirement contracts that extend through 2045. SIMECA's contract is similar to the REC contracts but is net of SIMECA's limited purchases from the Western Area Power Administration and renewable projects. The REC and SIMECA contracts are co-terminus.

FAVORABLE POWER SUPPLY RESOURCES

Fitch views CIPCO's resource mix as a credit strength, as it provides balance between fuel types, inclusive of nuclear, coal, hydro and wind generation, and balance between ownership structures. Approximately 45% of 2013 power supply was from coal-based generation, with the second largest source of power being nuclear generation (32%). The cooperative has been proactively diversifying its energy supply in recent years and uses both owned generation and long-term purchase contracts for non-carbon emitting resources to do so. CIPCO reached its target of 45% non-carbon emitting power supply in 2011, two years ahead of schedule, and received 55% of energy supply from non-carbon resources in 2013.

STABLE FINANCIAL PERFORMANCE

CIPCO continues to exhibit stable financial performance that outperforms peer medians. The cooperative targets, and sets member rates on, the greater of a 1.20x debt service coverage (DSC) ratio or a net operating margin of 5%, both calculations are exclusive of investment returns, which Fitch views favorably. DSC has decreased somewhat from its high of 1.72x in 2011, but has remained strong and in the range of 1.60x since 2009. This level of DSC compares favorably to other 'A' rated cooperatives and wholesalers, which had a median DSC of 1.32x in 2013.

A concerted effort by management to increase the cooperative's equity position has led to a strong equity to capitalization position of 35.6% at fiscal year-end 2013, up from 20% at fiscal year-end 2008. Equity is expected to be maintained at this level and patronage capital above target will be refunded.

DSC is expected to remain in the 1.6x range for the period 2014 through 2019. The forecast is conservatively based on an average annual growth of 1.35%, as compared to historical average growth of approximately 2% per annum since 2007, and budgets annual rate increases of approximately 1.75%.

LIQUIDITY POSITION

Liquidity, as measured by unrestricted funds on hand, is robust at 191 days. However, approximately 80% of these unrestricted assets are invested in equities, real estate investment trusts and hedge funds, which creates some uncertainty in regards to the amount of, and return on, investments. Fitch views CIPCO's investment strategy as somewhat risky, given the impact unpredictable income can have on financial metrics. The cooperative's margin policy that excludes investment income partially mitigates this risk.

CIPCO maintains three lines of credit totaling $145 million. The cooperative uses these lines primarily for working capital purposes, but may also use them to fund capital expenditures prior to long-term financing.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. Public Power Peer Study -- June 2014' (June 13, 2014);

--'U.S. Public Power Peer Study Addendum - June 2014' (June 13, 2014);

--'U.S. Public Power Rating Criteria' (March 18, 2014);

--'2014 Outlook: U.S. Public Power and Electric Cooperative Sector' (Dec. 12, 2013).

Applicable Criteria and Related Research:

U.S. Public Power Peer Study -- June 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749789

U.S. Public Power Peer Study Addendum - June 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750283

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=740841

2015 Outlook: U.S. Public Power and Electric Cooperative Sector (Steady as She Goes)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=831228

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=975155

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