CHICAGO — Ohio-based public power provider American Municipal Power Inc. will come to market Wednesday with $654 million of mostly taxable debt to finance a new hydroelectric plant along the Ohio River.
The project is part of AMP’s $7 billion capital program to build new power plants that will allow the company to lower its dependence on the market for its power purchases.
The Meldahl hydroelectric plant is one of four hydroelectric plants AMP is building along the Ohio River. The power provider is also spending up to $1.65 billion to finance its 23% ownership stake in the controversial Prairie State Energy Campus in Illinois. AMP also plans to begin financing construction of a natural gas-fired generation facility in the next 24 months, according to credit analysts. AMP’s debt levels will remain high for several years until the new projects are up and running, analysts said.
Wednesday’s sale has four series, including $33 million of taxable bonds, $595.4 million of taxable Build America Bonds, $20 million of federally taxable clean renewable energy bonds, and $5.9 million of tax-exempt bonds.
Wells Fargo Securities Inc. is the underwriter.
The bonds have a final maturity of 2050.
The debt is secured by AMP revenues derived from take-or-pay contracts with 48 municipalities that will participate in the project. The contracts require them to make monthly payments to AMP, including debt service, whether or not the plant is built or operating. The contracts feature a 106% step-up to cover payments from defaulting members.
The bonds are secured by a debt-service reserve fund and a subsidy fund that will cover six months of BAB interest rate subsidies. AMP will fund the subsidy account.
Fitch Ratings and Standard & Poor’s rate the bonds A. Moody’s Investors Service rates them A3. Analysts said the rating rests largely on the take-or-pay contracts, the reserve funds, and the credit rating of the city of Hamilton. Hamilton, located about 30 miles south of Cincinnati, will own 51% of the plant.
Most of the 48 participating members are located in Ohio, Michigan, Kentucky, and Virginia. Moody’s noted that lawmakers in Michigan and Virginia have passed legislation authorizing take-or-pay contracts with out-of-state corporations. In Ohio, a member’s default allows AMP to stop delivering power to that member.
The plant is expected to open in 2014.
AMP provides power to 128 members that serve a total of 1.2 million customers across six states.
