DALLAS — San Antonio's CPS Energy expects present-value savings as high as 12% on a $263.7 million refunding that is scheduled to price through negotiation with Bank of America Merrill Lynch Sept. 23.
The junior-lien bonds will refund a 2005 issue that is callable on Feb. 1, said Linda Dzierzanowski, senior director for finance and treasury at CPS.
"Based on latest number runs, we're looking at somewhere between $32 million and $34 million in present value savings," Dzierzanowski said. "That's right at 11 to 12%. We find the anticipated savings very impressive, especially since the maturities are only going out six years."
As the public utility for triple-A-rated San Antonio, CPS Energy can expect strong demand for these bonds, particularly given the lean supply this year.
"Every indication we have is that investors are looking for strong credits such as ours," Dzierzanowski said. "They're gobbling up anything that comes to market."
Dan Hartman, managing director at Public Financial Management Inc., is co-financial advisor on the deal with Don Gonzales, managing director at Estrada Hinojosa & Co.
Chris Sink, managing director at Bank of America Merrill Lynch, is lead banker on the deal.
JP Morgan Securities is co-senior manager with five other co-managers.
Fulbright & Jaworski is bond counsel, with LM Tatum as co-counsel.
The junior-lien bonds carry ratings of Aa2 from Moody's Investors Service. Standard & Poor's and Fitch Ratings are split with ratings of AA-minus and AA-plus, respectively.
Moody's analyst Dan Aschenbach attributed the high rating to CPS' strong service area economy, the utility's significant competitive retail rate advantage, reliable and diverse power supply, conservative financial record, and a sound debt structure and risk management program.
"Moody's continues to have a favorable opinion of utility management as the utility transitions to changes in its power supply mix," Aschenbach wrote.
The utility's five-year capital improvement plan through 2019 is about $2.9 billion, with about 59% funded by new debt averaging about $294.4 million of bonds per year.
Dzierzanowski said CPS does not expect to be in the market for new money until late next year.
CPS has $1.5 billion in outstanding junior lien obligations and $3.8 billion in senior lien obligations, according to Fitch.
"The utility's debt burden and equity position are average relative to Fitch's median ratios," said Fitch analyst Kathy Masterson.
