DALLAS -- Ohio-based American Municipal Power Inc. received a one-notch upgrade from Moody's Investors Service as it prepares to come to market with a $206 million issue that includes designated "green" bonds.

The bonds are slated to sell next week with a target of Monday with RBC Capital markets and Bank of America Merrill Lynch as co-senior manager.

A portion of the proceeds with a green bond designation will reimburse a $127 million draw on a $750 million line of credit that AMP used to cover the costs of a hydroelectric project that saw a two-and-a-half year delay. Proceeds will also finance the final completion costs.

AMP also plans to use proceeds to refund all or a portion of a 2009 issue although that piece depends on market conditions. "The refunding is a very small part of the transaction, but is expected to generate over $1 million of savings for AMP," Marcy Steckman, AMP's senior vice president of finance, said in an interview.

Moody's upgraded its rating to A2 from A3. The upgrade impacts nearly $2 billion of AMP's outstanding project revenue debt.

S&P Global Ratings affirmed its A rating and Fitch Ratings affirmed its A-minus rating.

Moody's upgrade reflects a reduction in construction risk now that five of the eight units of AMP's combined hydroelectric projects are in commercial operation and the expectation that the three-unit Smithland Hydro Project that will provide 76 megawatts of power is expected to be in commercial operation by the first quarter of 2017.

AMP planned to launch three Ohio River hydroelectric units: Cannelton, Willow Island, and Smithland, as part of its strategy to diversify its power resources and lessen the wholesale market exposure of its participating municipal utilities.

However, construction delays drove the costs of the project up by 11.8%, or 1.8% above the budgeted contingency. 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.

The delays were attributable to slower-than-anticipated permit approvals for all three facilities, problems with concrete pouring, the need for unanticipated ground improvements at Cannelton and Smithland, and poorer than expected geologic conditions at Smithland, according to S&P's credit report.

The Cannelton units, placed in service January to June 2016, and the Willow Island units, placed in service January to February 2016— were two-and-a-half years behind the original schedule.

The Smithland units are similarly delayed but are expected to be placed in service in January to February 2017. "AMP has brought its senior staff with significant hydro experience to work on the project to meet the commercial startup schedule in early 2017," said Moody's.

The projects are not the first for AMP Ohio to suffer delays. AMP Ohio is a participant in the controversial Prairie State Energy Campus that suffered delays which drove its costs up. The coal-fired project has recovered and is now up to speed in energy production.

The upcoming issue is secured by a take or pay power sales contracts between AMP Ohio, a joint power agency, and 79 municipal utility participants. The contract, which expires no earlier than 2057, obligates the participants to pay their share of all power costs, including debt service, regardless of whether some or all of the three projects are finished or operating.

The structure includes a step up provision of up to 25% should any participant default in obligation under the power sales contract.

The bond is being sold with a green bond designation. "The market for green bonds is evolving and potential new investors may appreciate the Green bond aspect of AMP's Combined Hydro Project," said Steckman.

S&P last week said in a report that green bonds volume is expected to see between $6.3 billion and $7.2 billion of issuance in 2016, a step up from $4.1 billion issued in 2015 and $2.4 billion in 2014.

However the market for U.S. municipal green bonds could be significantly larger. A recent HSBC report identified $30.3 billion of municipal bonds issued from 2014 to 2016 that met its green standard, only $10.9 billion of which were actually labeled green by issuers.

"In our view, the potential for broader participation by municipal market issuers into green bonds is high, and will be a function of costs relative to benefits, investor demand, and broader public support for infrastructure projects that promote sustainable long-term environmental objectives," said S&P.


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