Regional News

Florida Municipal Power Preps $560M Sale

BRADENTON, Fla. - The Florida Municipal Power Agency on Sept. 4 expects to price approximately $560 million of new-money and refunding revenue bonds, including the first of seven transactions it has planned in order to exit $871 million of outstanding auction-rate debt.

Proceeds from $490 million of fixed-rate, tax-exempt Series 2008A bonds will include $200 million of new money to fund construction of a 300-megawatt, natural gas-fired generator. Proceeds also will refund about $178.2 million of auction-rate securities and refinance $75 million of loan obligations as well as pay costs of issuance.

Some $70 million of fixed-rate, taxable bonds will be sold in Series 2008B. About $55 million of the taxable bond proceeds will be used to pay for the FMPA's ownership interest in natural gas reserve investments with Public Gas Partners and $15 million will be used to acquire a spare parts inventory for future maintenance.

Both series are expected to be structured with serial bonds, but there may be some term bonds in the Series A deal. Maturities may extend to 2035 on the Series A transaction and less than 10 years on the Series B bonds.

The FMPA does not anticipate insuring the deal for a variety of reasons, but the agency will consider, maturity by maturity, if insurance makes sense, said FMPA treasurer Janet Davis, who recommended issuing all fixed-rate bonds solely on the underlying credit ratings if necessary.

"We've never done that before," Davis said. "But there does not seem to be a benefit in adding bond insurance, and it's very expensive if you can get it."

The bonds are rated A-plus by Fitch Ratings and A1 by Moody's Investors Service. They are not rated by Standard & Poor's.

When looking at the structure of the deal, Davis said the agency initially considered triple-A rated insurance from Financial Security Assurance Inc. But since FSA has a negative outlook from Standard & Poor's, and is under review for a downgrade by Moody's, the FMPA was concerned about the potential for a downgrade as well as the lack of diversity among triple-A insurers, she said.

"The markets have become so flooded with those bond insurers that still have triple-A ratings that there's a little push back in terms of acceptance," Davis said, adding that investors are "probably at their limit in what they are accepting."

The FMPA has spent months preparing to restructure its $1.3 billion debt portfolio and to exit auction-rate securities as the credit market disruptions continued to unfold.

"Thinking through how to structure a deal today is unlike anything I've experienced in the past," said Davis, who has been with the FMPA for nine years. "The markets we've experienced this year are unlike what we've seen in the past, and things that would be easy decisions in the past you really need to come up with different answers today."

While opting for a more conservative fixed-rate structure may cost more, Davis said, the yield curve is "pretty advantageous" now. She also said the supply of fixed-rate municipal bonds is low, particularly from Florida.

"I don't think what we're going to get in terms of a fixed rate is going to be unattractive right now," Davis said. "I think there's a fairly large appetite for this kind of paper."

The agency, which has received numerous calls and e-mails from investors holding auction-rate securities, is planning six additional auction-rate refundings in September and October - three are expected to be fixed-rate transactions while three are expected to be sold as variable-rate demand obligations.

The auction-rate securities market collapsed earlier this year as the credit crunch intensified.

"We are excited about helping investors move out of products that are not working for them," said FMPA chief financial officer Mark Larson. "We've gotten a fair number of phone calls from people wanting to know when we are going to take them out of auction rate and wanting to know about the fixed rate [deals]."

In rating the upcoming deal, Fitch said the FMPA faces a number of challenges that may put pressure on its ratings. The agency lacks a comprehensive power supply strategy for the replacement of power from contracts expiring in 2009 through 2013, and must cope with more limited new generation options due to Florida's moratorium on coal plant development.

In addition, Fitch said three of the 15 participants in one of the agency's ventures, known as the all-requirements project, have changed their status by reducing their energy requirements or opting out of contract extensions after 2036. A fourth participant is conducting a study to determine how best to meet its future power supply needs.

"Fitch will continue to monitor this issue as it remains unclear what significance, if any, this may have on the agency's performance," the agency said. "However, these participants are still obligated to pay their original share of the debt on the projects in which they participate."

Both Fitch and Moody's place stable outlooks on all of the FMPA's outstanding debt as well as the upcoming bond sale.

Merrill Lynch & Co. is the book-runner on the 2008A and B bonds. Other underwriters are JPMorgan, Goldman, Sachs & Co., Morgan Stanley, Banc of America Securities LLC, and SunTrust Robinson Humphrey Inc.

Dunlap & Associates Inc. is the agency's financial adviser. Nixon Peabody LLP is bond counsel. Underwriters' and disclosure counsel is Orrick, Herrington & Sutcliffe LLP.

The FMPA is a nonprofit, joint-action agency with 30-member municipal electric utilities serving approximately two million Floridians. Each member appoints one representative to the governing board of directors.



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