Wisconsin Public Power in $225M Deal to Ditch ARS Market

CHICAGO - The Sun Prairie-based Wisconsin Public Power Inc. enters the market today with $225 million of fixed-rate revenue bonds in a transaction that will finance the agency's exit from the auction-rate market, cover the termination fees on swaps related to its ARS, and raise $20 million for capital projects.

JPMorgan is the underwriter on the transaction. The power agency is working with RBC Capital Markets as its financial adviser, and Orrick Herrington & Sutcliffe LLP is bond counsel.

WPPI will use about $190 million of the sale to refund its three series of auction-rate debt. The agency, like other issuers, began experiencing failed auctions and rising rates earlier this year as investors withdrew support for the product amid the credit crunch.

The maximum rate bonds could reset at following a failed auction was index-based and so they never exceeded the mid-single digit range, said WPPI chief financial officer Marty Dreischmeier. "Our view is that the auction-rate market is not viable," he said of the agency's decision to refund the debt and swap it to a fixed rate.

About $20 million will generate new money for projects, including improvements to its Boswell Unit 4 power plant with the remainder covering the costs of terminating three swaps tied to the existing auction-rate debt. The agency has no other swaps and following today's transaction will have only fixed-rate debt outstanding.

The bonds are secured by WPPI's net revenues generated mostly from its sale of power to 41 members located in Wisconsin, Michigan's Upper Peninsula, and northeastern Iowa that serve 191,400 customers.

Ahead of the sale, WPPI won an upgrade from Standard & Poor's to A-plus from A. Moody's Investors Service affirmed its A1 on the power agency's $443.7 million of total debt, and Fitch Ratings affirmed it's A-plus.

"The rating upgrade reflects WPPI's all-requirements contracts with a deep membership base, a record of strong debt service coverage and liquidity that exceeds levels generally posted by joint action agencies, and the improved credit quality of WPPI's members," Standard & Poor's analyst Jeffrey Panger wrote in a review.

The agency provides power at competitive rates below those charged by investor-owned utilities that serve its regions. Its financial operations are considered solid with debt service coverage of at least 1.25 times expected through 2017. WPPI serves its members through a combination of self generation power, purchased power, and through member/customer generation.

Fitch analysts said they would continue to monitor developments stemming from the agency's 8.33% stake in the Elm Road Project which consists of two 615 megawatt coal-fired units. It is 50% complete, but remains the subject of litigation with respect to its water permit and an adverse ruling could require the project to construct cooling towers.

On the positive side, WPPI anticipates using the proceeds of a $54 million check related to the fiscal 2008 sale of a power plant to fund a reserve to finance the retrofitting of its existing power plants to control mercury and to make other improvements, Moody's wrote.

 

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