Fitch Ratings has affirmed Atmos Energy Kansas Securitization I, L.L.C.'s outstanding bond at 'AAAsf'.

The Rating Outlook is Stable.

RATING ACTIONS

Entity / Debt

Rating

Prior

ATMOS ENERGY KANSAS SECURITIZATION I, LLC

A 04956GAA8

LT

AAAsf

Affirmed

AAAsf

Page

of 1

VIEW ADDITIONAL RATING DETAILS

Transaction Summary

Collateral for the bond consists primarily of securitized utility tariff property, which represents the right to collect a tariff (Winter Event Securitized Cost Recovery Rider [WESCR]) from Atmos Energy Corporation (Atmos) retail natural gas customers in Kansas.

While transaction performance remains stable, Fitch notes that on the last payment date principal payments on the bonds were lower than the targeted amount; therefore, the outstanding principal amount is not in line with the targeted amortization schedule as of the latest payment date. Similarly, the capital and overcollateralization subaccounts are not fully funded at their required levels.

Atmos has reported that the reason there was a shortfall in collections needed to cover the expected payments due on the first payment date is because it did not allow enough time for the WESCR-setting mechanism to take effect. This mechanism involves a delay between sending out the first bills to customers and when when customers actually make their payments.

Fitch expects the true-up mechanism to remedy the shortfall over the next payment date in September 2024. The new mechanism should also bring back the outstanding principal balance of the bonds to the target amount for September 2024 and provide adequate credit support for the outstanding classes.

KEY RATING DRIVERS

Credit Analysis (Revenue Stability): The cash flow supporting the utility tariff bonds comes from payments of the WESCR from all current and future retail natural gas customers in the utility's service territory. Shifts in customer base, and particularly in the number of customers, can be caused by various factors, such as the introduction of new technologies, the overall economy, effects of natural disasters, demographic changes or shifting usage patterns. Such shifts present risk in this asset class given the tenor of the bonds; however, this is mitigated by the true-up mechanism.

Legal Risk and Regulatory Framework: The strength and stability of the underlying WESCR are established by the financing order issued by the Kansas Commission. The financing order establishes the irrevocable, binding and non-bypassable WESCR and defines bondholders' property rights in the securitized utility tariff property. The financing order contains the key legal elements expected by Fitch's 'U.S. Utility Tariff/Stranded Cost Bonds Rating Criteria' in a utility tariff securitization.

Structural and Credit Enhancement Analysis - Positive: Credit enhancement is provided primarily in the form of a true-up mechanism. Mandatory semiannual true-up filings adjust WESCR to ensure collections are sufficient to provide all scheduled payments of principal and interest, pay fees and expenses, and replenish the capital subaccount (0.50% of the initial issuance amount) over the following 12 months. Furthermore, interim true-ups may occur at any time, if necessary, but must meet certain defined parameters.

Cash Flow Analysis: For this transaction, Fitch reviewed cash flows provided by transaction parties, as the initial tariff rate is less than 10%, in line with 'U.S. Utility Tariff/Stranded Cost Bonds Rating Criteria'. Fitch's 'AAAsf' scenario analysis stresses key model variables, such as customer count in each customer class, charge-off rates and delinquencies. Under Fitch's 'AAAsf' stress assumptions the peak WESCR for the series is within the 20% tariff level Fitch considers consistent with 'AAAsf' ratings.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

As part of its initial rating sensitivity, Fitch conducted a break the bond case that provides an alternative means by which to measure the potential effects of rapid, significant declines in power consumption while capping the residential securitization charges at 20% of the total customer bill. This analysis determines the maximum level of forecasted energy decline that would cause a default in required payments on the securitizations or cause the tariff charges to exceed 20% of the total residual customer bill.

Despite this severe decline in consumption, due to the true-up mechanisms, the tariff charges are able to pay all debt service by the legal final maturity date.

For further detail on the rating sensitivity analysis for utility tariff bonds, please see Fitch's 'Rating Criteria for U.S. Utility Tariff Bonds' available at www.fitchratings.com.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Given the 'AAAsf' rating, an upgrade rating sensitivity was not conducted.

CRITERIA VARIATION

None.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

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