DALLAS — Arizona’s Salt River Project Agricultural Improvement and Power District is preparing to sell $325 million of electric revenue bonds by the end of the month to refund all but $50 million of the utility’s commercial paper.

The deal still needs board approval, which is expected this week. Treasurer Aiden McSheffrey said the structure of the bonds would be announced after that.

The board is also expected to approve a new revolving credit agreement for the commercial paper program. The current agreement is set to expire this year.

McSheffrey said the bonds would be sold competitively, the first such deal for the Salt River Project.

“We think that the market will be strong for a competitive sale, given the structure that we’ll be offering,” he said.

The deal would be the second for the SRP this year, following a $750 million issue in January. The district has about $3.7 billion of outstanding revenue bonds and $233 million of lease-purchase debt.

Ratings for the bonds were affirmed this week at Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.

While praising the district’s fiscal policies and diversity of energy sources, Moody’s analysts noted the sharp economic decline that has afflicted Arizona for the past two years.

“Growth in the number of new accounts in 2009 significantly slowed,” analysts wrote.

The SRP is preparing to bring its nearly $1 billion, 400 megawatt Springerville Four coal-fired power plant on line by the end of the year after settling with the U.S. Environmental Protection Agency on installation of emissions equipment at a cost of $400 million.

SRP board members last month voted to postpone an 8.8% rate hike until a rate study could be performed with emphasis on fuel prices. The board decided that rates would not be increased until May at the earliest.

The board’s rate-making authority was cited by Standard & Poor’s as a positive factor in the district’s credit rating.

“However, if SRP actions perpetuate its weak financial performance, by continuing to defer rate actions or through other actions, there could be negative rating implications,” Standard & Poor’s credit analyst David Bodek added.

“We believe that managing the financial and operational elements of the large capital program and variable operating costs will be important in determining creditworthiness.”

Moody’s concurred with that assessment and also observed that “SRP’s sound financial polices reflected in SRP’s six-year financial plan (2010-2015) establishes various core financial indicators and sets financial performance parameters, which management treats as critical benchmarks for the future.”

At a conference on the state’s economic outlook sponsored by the district, Arizona State University economist Lee McPheters warned that the housing market still had not hit bottom and that the state’s 9.4% unemployment rate would soon surpass 10%.

Phoenix lost 7.8% of its employment base last year, the highest of any large U.S. metro area, McPheters said, predicting the loss of 150,000 to 160,000 jobs this year.

With one of every 25 homes in foreclosure the Phoenix area’s 38% decline in home values ranks third worst nationally, he said.

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