BRADENTON, Fla. The Florida Municipal Power Agency plans to restructure more than $871 million of debt in order to "completely exit the auction-rate securities market," general manager Roger Fontes said late Tuesday.
The proposed debt restructuring is expected to occur in seven transactions over the next few months, starting in July, enabling the FMPA to refinance $871 million of auction-rate securities and issue nearly $305 million in new debt to primarily fund new power supply facilities.
"We believe that the proposed debt restructuring will serve the best interests of both our investors and our ratepayers," Fontes said in a statement.
The agency has been working since earlier this year to come up with a restructuring plan. Since mid-February, when dealers stopped backstopping issuers' auctions, the FMPA has largely experienced failed auctions, the agency's treasurer, Janet Davis, said yesterday.
The agency has not purchased its auction-rate securities largely because of somewhat favorable penalty interest rates ranging from 3% to 7%, she said.
"We were fortunate that the finance team that put our auction-rate securities together over the years limited our exposure by the formulas that dictate what the maximum rates are," Davis said. "We did not see the percentages that others did, but the rates were much higher than what we were accustomed to."
While interest rates stayed largely on the lower end of the maximum rates, the agency typically paid around 2% before the market disruptions. But because interest rates were lower than what other issuers experienced, Davis said the MPA had time to restructure its portfolio.
However, some investors holding the agency's auction-rate securities have told Davis they are unable to tender their bonds.
"They are unhappy with the fact that they don't have something as liquid as they thought it would be," she said. "I'm afraid the reality is a lot of them listened to the way they were marketed and focused on the liquidity feature and not on the long term nature of the bonds.
"One holder told me he had [auction-rate securities] stacked up for every quarter to use to make his tax payments," Davis related. "It's obvious to me that either the holders misunderstood or they were marketed in a way that the holders focused on the liquidity feature and that was a mistake."
The FMPA expects to close on the new-money bonds and refinancings in July and August, and possibly in September because Davis said many bankers and bond attorneys are overwhelmed with business.
The first two deals will be for the FMPA's all-requirements projects. The first transaction is expected to be a $390.6 million fixed-rate deal with $85.95 million of the proceeds going to refund auction-rate securities. The remainder of bond proceeds will be new-money for various electric projects. The second transaction will be a conversion of the agency's $90.3 million, Series 2003B-1 and B-2 bonds from auction rate to variable rate.
The remainder of the refundings will follow shortly thereafter refunding auction-rate securities sold for individual projects known as St. Lucie, Stanton, and Stanton II.
The FMPA's auction-rate securities are rated in the A-category
The agency's finance team expects to present the restructuring plan to rating agencies and insurers soon. The plan will leave the FMPA's portfolio with 55% to 60% of traditional fixed-rate debt, 36% of debt synthetically fixed, and the remainder in synthetic debt linked to the consumer price index.
The restructuring is expected to require terminating a portion of some swaps and insurance. Unlike issuers that paid for their bond insurance premiums up front, most of the FMPA's insurance premiums are paid annually so it won't be forced to lose value by cancelling the coverage, Davis said.
The agency has a pool of underwriters that will be assigned to each transaction. Dunlap & Associates Inc. is the agency's financial adviser. Nixon Peabody LLP is bond counsel.
The FMPA is a nonprofit joint-action agency with 30-member municipal electric utilities serving approximately two million Floridians. Each member appoints one representative to the governing board of directors.