CHICAGO – Wisconsin-based WPPI Energy will sell $180 million of new-money and refunding power supply system bonds Wednesday to raise funds for capital projects that include environmental upgrades to a generating unit and transmission improvements.
Barclays Capital is the senior manager. The underwriting team also includes BMO Capital Markets and JPMorgan. McDonald Partners Inc. is adviser and Orrick Herrington & Sutcliffe LLP is bond counsel.
Ahead of the sale, rating agencies affirmed WPPI's ratings. Fitch Ratings assigns an A-plus and stable outlook. Moody's Investors Service assigns an A1 and negative outlook. Standard & Poor's rates the power provider A and stable.
The system will have about $500 million of outstanding rated debt after the new issue. The system's bonds are secured by its net revenues. The agency has 51 member systems that have entered into long-term power supply contracts through 2037.
A portion of the debt will refund outstanding bonds from 2003 and 2005 issues. The remainder will cover its share of the costs to install energy retrofits at the Boswell coal-fired plant to bring it into compliance with federal standards for mercury emissions ahead of a 2016 deadline. Proceeds will also finance transmission line improvements and capital projects at its Elm Road Generating Station.
Fitch said WPPI's financial performance has stabilized and debt service coverage is expected to improve in fiscal 2013 to levels in line with the current rating. The credit also benefits from WPPI's diverse mix of generation resources, power contracts, and fuel sources.
"New owned and purchased resources should position WPPI to reduce its reliance on more costly long-term purchase power arrangements and provide more cost-effective energy prices to its members," Fitch wrote.
WPPI's power costs are competitive for the region and it has reduced its use of rate stabilization reserves and expects to replenish the fund by the end of 2015, Fitch noted. Coverage of debt service is expected to rise to 1.4 times this year from 1.1 times in 2012.
Moody's attributed its negative outlook to concerns over the impact of additional debt on WPPI's balance sheet, warning it "could negatively impact already lower levels of liquidity and pressure rates in the event of significant delays or cost overruns, amid declining financial metrics over the past three years."
Moody's said the credit benefits from a shift to a 12-month debt service reserve from the current six-month reserve and because the system is in compliance with the state's current renewable energy requirements. In addition to increased leverage, WPPI's credit challenges include exposure to construction delays or cost overruns on projects and weakened rate competitiveness.
"WPPI has completed a multiyear investment plan and now has in place sufficient power supply resources to meet the members' baseload generation needs until at least 2020," Standard & Poor's wrote.
By 2017, management expects coal to account for 47% of its power, nuclear for 21%, natural gas for 20%, and renewables for the rest. The utility also buys power at market prices from the Midwest Independent System Operator and sells power into the energy market when prices are favorable.
WPPI provides wholesale electric service to 51 utilities in Wisconsin, upper Michigan, and northeastern Iowa, serving 200,000 homes and businesses and a population of 345,000.
