AMP selling Prairie State refunding bonds
Ohio-based American Municipal Power Inc. plans a $360 million refunding that mixes taxable and tax-exempt debt.
The deal from the nonprofit electricity wholesaler will generate savings on some of the $1.5 billion of outstanding debt tied to its ownership of the Prairie State Energy Campus in Illinois. The deal is expected to price Tuesday. Citi is lead underwriter. Banc of America Merrill Lynch, Goldman Sachs, KeyBanc Capital Markets, PNC Capital Markets LLC and U.S. Bancorp are co-managers. Ramirez & Co. Inc. is advising AMP in the sale.
The tax-exempt bonds will refund $153 million of PSEC debt issued in 2015 and $106 million issued in 2009. The taxable bonds will refund PSEC related debt issued in 2015. S&P Global Ratings analyst Jeffrey Panger said the refunding is for a straight savings and will not restructure bonds for upfront relief.
AMP has in the past used Prairie State refundings to capture upfront debt service relief after cost increases drove up bills for ratepayers of the public utilities that contracted to accept electricity from the coal-fired plant.
In October 2017 it priced $67 million of bonds to lower debt service requirements over the next five years to better position the project cost structure in relation to participant billings. The deal was preceded by a $646 million debt restructuring in December 2014.
Ahead of the sale, Moody’s Investors Service affirmed the A1 ratings on the bonds and S&P Global Ratings assigned its A rating to the bonds. The outlook for both is stable.
AMP said in the offering statement that Fitch Ratings is not rating the 2019 bonds. In October the rating agency downgraded outstanding bonds tied to the project to A-minus from A. The downgrade was prompted by the criteria changes impacting the way Fitch views purchaser credit quality.
The bonds are secured by the take-or-pay power sales agreements with 68 AMP members. AMP has a 23.26% ownership interest — the largest stake — in the 628 megawatt generation facility that includes an adjacent mine that supplies the coal.
Eight other utilities, including five other municipal joint action agencies, are owners of Prairie State and the several billion of debt issued for the project is separately secured from AMP’s revenue bonds.
The refunding comes as PSEC looks to implement roughly $172 million in improvements over fiscal 2019 to fiscal 2023. The capital improvement plan was approved by the Prairie State participants as part of the 2020 operating plan. AMP's share of the capital improvement plan is $40 million.
“AMP has no new borrowing expected for Prairie State capital improvements, but may potentially refund portions of outstanding Prairie State project revenue bonds over the next several years,” Moody’s stated.
AMP said in an investor presentation that it expects to pay its share of capital improvements through rates charged to the participants and not with the proceeds of additional bonds.
PSEC's five largest participants are Danville, Virginia, Hamilton, Bowling Green and Piqua in Ohio, and Cleveland Public Power, which combine for over 40% of total project obligation.
The Prairie State project ran up cost overruns of nearly 25% that boosted the final price tag to nearly $5 billion, driving up customer rates.