Long Island, N.Y.’s electric service provider will come to market on Wednesday with its largest deal since 2008.
The Long Island Power Authority is expected to sell $500 million of electric system general revenue bonds in two series to fund capital expenditures and refund outstanding debt.
The $250 million new money portion will not finance any specific projects, but will support the authority’s ongoing capital program, said Mark Gross, director of communications for LIPA.
Capital expenditures under the program go toward maintaining the electric service, capability expansion, new customer connections, facility replacements, and reliability enhancements.
From the $250 million refunding portion, LIPA expects around $30 million in interest rate savings, Gross said.
Morgan Stanley will price the bonds. Hawkins Delafield & Wood LLP is bond counsel and Public Financial Management, Inc. is financial advisor.
The bonds will be callable, and structured as serial and term. The anticipated final maturity for the first series is in 2042, and for the second series, 2029.
The bonds will be secured by revenues generated from the operation of LIPA’s electric system, which serves approximately 1.1 million customers in Nassau County, Suffolk County, and a portion of Queens County.
Fitch Ratings, which rates the bonds at A with a stable outlook, said LIPA has a well-diversified and affluent customer base and “one of the most reliable electric systems in the Northeast.”
Fitch also reported that unusually high storm costs, coupled with 1% less in kilowatt-hour sales in fiscal 2011 have resulted in lower cash flow and debt service coverage, which dropped to 1.23 times from 1.35 times.
“LIPA’s high debt burden and nominally high electric rates remain a key credit concern,” Fitch said.
Standard & Poor’s and Moody’s Investors Service assigned lower ratings, at A-minus with a stable outlook, and A3 with a negative outlook, respectively.
“The ratings reflect our opinion of the benefits of a stable and predictable revenue stream that LIPA earns while serving the transmission and distribution needs of a broad and affluent customer base whose residential customers account for slightly more than half of operating revenues,” said S&P analyst David Bodek.
Moody’s also cited the favorable customer base, as well as a monopoly of services within the territory, and the LIPA board’s ability to authorize rates.
Its negative outlook is based on weak cash flow metrics and a tight liquidity position, which management has begun taking steps to potentially improve.
The ratings have not changed since LIPA’s last sale of $250 million of revenue bonds in September.
Yields from that deal ranged from 1.61% with a 5% coupon in 2016 to 4.79% with a 5% coupon in 2038.
Bonds maturing in 2036 were insured by Assured Guaranty and received ratings of Aa3, AA-plus, and A, from Moody’s, S&P, and Fitch, respectively. The 25-year insured bonds offered a 4.65% yield with a 5% coupon.
Gross said the authority is still evaluating whether any of Wednesday’s bonds will have insurance.
