Ohio-based American Municipal Power will sell $97 million of tax-exempt project revenue bonds to pay off a portion of the variable-rate, taxable credit line it used for interim financing on its combined hydroelectric project, which consists of three run-of-the-river hydroelectric facilities on the Ohio River.
AMP plans to sell the bonds next week. The bonds would retire all but $32 million of AMP’s credit line. AMP has roughly $2.1 billion outstanding of combined hydroelectric projects revenue bonds.
Moody’s Investors Service rates the bonds A1. Fitch Ratings assigned an A-minus rating and S&P Global Ratings rates the bonds A. All assign a stable outlook.
Bank of America Merrill Lynch is the senior manager. KeyBanc Capital Markets and Wells Fargo Securities are co-managers.
The bonds will be issued as fixed-rate term bonds with a three-year mandatory tender. The bonds will not be backed by a liquidity facility. Instead, a stepped-up interest rate will be applied to the bonds of up to 9% if the bonds are not remarketed.
“We would anticipate that AMP would use its $600 million line of credit to refinance the bonds in the event of a failed remarketing, thereby largely avoiding the need to pay the penalty rate,” S&P said.
The debt is secured by AMP revenues derived from take-or-pay contracts with 79 municipalities that participate in the project. Take-or-pay power sales contracts obligate the members to pay for their respective shares of all project costs, including debt service on the bonds, whether or not the project is operating or any power is delivered. The bond covenants also include a 25% step-up provision and a fully funded maximum annual debt service reserve.
The projects consist of three separate run-of-the-river hydroelectric generating facilities on the Ohio River — Cannelton Project, Smithland Project and Willow Island Project — that have an aggregate generating capacity of 208 MW. They are part of AMP’s $7 billion capital program to build new power plants that will allow the company to diversify its power resources and lessen the wholesale market exposure of its participating municipal utilities.
All of the hydroelectric units are now commercial and providing AMP participants with energy, which Moody’s said eliminates the construction risk tied to the project.
Construction delays drove the costs of the project up by 11.8%, or 1.8% above the budgeted contingency.
The Cannelton and Willow Island units were placed in service in 2016, about two and a half years behind the original schedule, while the Smithland units were placed in service in 2017, more than three years behind schedule. AMP drew from its line of credit, which is available for use on any AMP project, to meet interest payments on the combined hydroelectric project during the delay.
Moody’s said that litigation risk with Voith Hydro Inc., the supplier of major powerhouse equipment, remains outstanding and could impact the final cost of the project.
AMP filed suit against the major powerhouse supplier claiming $90 million in damages and Voith Hydro has a counterclaim of $65 million. No trial date has been set.
“We do not expect the outcome to be a significant consideration for AMP, the existence of litigation adds incremental cost uncertainty to the already high project cost,” Moody's said.