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AMP-Ohio Deals for Coal Plant

CHICAGO - American Municipal Power Inc. in Ohio will enter the market today with $480 million of taxable revenue bonds in a transaction that will nearly complete the utility's financing of its share of the $4.36 billion coal-fired Prairie State Generation Station.

The finance team was still finalizing structural details but is expected to sell the bonds in two series - a taxable piece for $87.3 million and a taxable Build America Bond series for $393.3 million. The team might opt to split one of the series as well as issue additional tax-exempt debt depending on market response at pricing.

Merrill Lynch & Co. is senior manager on the deal.

Fitch Ratings and Standard & Poor's maintain A ratings on the system's debt, which Moody's Investors Service rates A1.

The bonds are secured by AMP's net revenues, which are derived from contracts with its 69 member utilities. Credit analysts praised the financial strength and diversity of AMP-Ohio's participating utilities as well as the power agencies that are part of the Prairie State project.

A nonprofit wholesale power and service provider, AMP serves 128 electric systems across six states, most located in Ohio, and serves more than 570,000 customers. Proceeds from today's bond sale will nearly complete the utility's financing of its 23% ownership stake in the Prairie State Project as well as a fund a deposit into a debt service reserve fund.

After this transaction the utility will have issued roughly $1.3 billion in long-term debt to finance its share of Prairie State, which is one of three power generation plants that AMP is developing. The utility is also financing a series of hydro energy plants along the Ohio River and a $3.9 billion American Municipal Power generation station coal plant.

By owning part or all of three power generating plants, AMP is attempting to lock in the long-term purchase price of coal, rather than relying on the open market to purchase power. Overall, the agency expects to reduce its open market purchases to 10% from 60% once all three plants are up and running.

The costs of AMP's share of all three plants total $5.9 billion - raising some concerns by Fitch analysts as to whether the utility will be able to maintain sufficient liquidity to support the capital plan.

Located in southern Illinois, the Prairie State Project includes two supercritical units, and the development of a coal mine and other related facilities. A total of six municipal electric utilities will own the plant: AMP, the Northern Illinois Municipal Power Agency, the Illinois Municipal Electric Agency, the Indiana Municipal Power Agency, the Kentucky Municipal Power Agency, and the Missouri Joint Municipal Electric Utility Commission.

Engineering work is 80% compete and construction is 26% complete. The first unit is scheduled to open in August 2011 and the second in May 2012.

The project is considered unique on several fronts. It is expected to be one of the nation's most state-of-the-art coal-fired facilities, with advanced environmental controls that meet stricter pollution-control standards. It provides its participating members with a prepaid coal supply of 200 million tons, which should last the 30-year life of the plant. The generating unit is located on top of the coal reserves and adjacent to the mine, reducing potential rail transportation risk.

Credit analysts generally praise the project but note that construction and regulation risks associated with large coal-fired generators could pose a problem in the future.

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