LOS ANGELES — The Guam Power Authority plans to sell $76.5 million in senior revenue bonds the week of Sept. 15.
Proceeds from will pay for improvements to generating facilities and fund an $8.5 million debt service reserve.
Barclays and Citi are the underwriters. Orrick, Herrington & Sutcliffe is bond counsel.
The deal comes with low investment grade ratings, and rating agencies differing on the credit's direction.
Moody's Investors Service revised the outlook on its Baa3 rating to positive from stable in August; at about the same time Fitch Ratings revised the outlook on its BBB-minus rating from to negative from stable.
Standard & Poor's affirmed its BBB rating, one notch higher, and stable outlook.
Fitch cited the risks associated with the authority's plan to reduce its dependence on oil-fired generation for its revised outlook.
Fitch analysts said they are concerned that the sizeable costs and related debt obligations of the system-wide conversion to a dual-fuel generation of natural gas and oil could weaken leverage metrics and operating flexibility to levels consistent with more speculative-grade credits.
The action affects $491 million in outstanding senior revenue bonds; Fitch also affirmed the authority's $39.5 million in outstanding subordinated revenue bonds at BB-plus.
Fitch added in the report that it expects to "resolve the negative outlook as the full effect of the proposed energy conversion plan becomes more clearly defined over the next two years."
Moody's cited "the certainty of rates over the next few years as well as GPA's consistent operational and financial profile," as a reason for its improved outlook.
Success in implementing its liquefied natural gas strategy could boost the power authority's rating in the future, according to Moody's.
Fitch analysts also said they view positively the authority's strategic energy plan to diversity the utility's fuel mix to comply with environmental regulations.
"Projected costs are sizeable and the permitting process could be lengthy," but Fitch analysts said they "expect the plan will ultimately result in a newer, significantly more efficient generation fleet that allows for greater diversity in fuel supply.
Guam, population 160,000, is a strategic U.S. military post in the Western Pacific located 1,600 miles south of Tokyo.
In October 2013, Standard & Poor's upgraded Guam's general obligation bond rating to BB-minus from B-plus as its finances strengthened. The rating remains three clicks below investment grade.
Governor Eddie Calvo signed the budget bill this week for fiscal 2015, which he said in a release represents the territory's fourth consecutive balanced budget with a surplus. Prior to that, Guam had 19 years of deficit funding and owed taxpayers millions of dollars of tax refunds.
Securities from Guam, like those of other U.S. territories, offer interest free of state and local income taxes nationwide.
"We attribute the surpluses of Fiscal Years 2012 and 2013, and the anticipated surplus in the current fiscal year to responsible financial planning," Calvo said. The strategy has been simple: smart deficit financing, under-spending, and collections of revenue beyond projections. This fiscal policy continues into FY 2015."
The power authority's sale will follow an $86 million deal from the Guam Waterworks Authority in July.
