CHICAGO - The Indiana Municipal Power Agency will enter the market tomorrow with roughly $208 million in revenue bonds to finance construction of two major Midwest coal-fired power plants.
Proceeds from the sale will mark IMPA's final piece of financing for the Trimble County Unit 2 Project and the agency's second-to-last piece of financing for the Prairie State Project located in southwestern Illinois.
Like other municipal power utilities buying ownership stakes in new coal-fired generation plants, IMPA expects the move will allow it to lock in more stable power prices in the future.
The bond sale includes roughly $185 million of tax-exempt revenue bonds and $20 million in taxable revenue bonds. Proceeds from the taxable bonds will finance certain projects for Prairie State that are not eligible for tax-exemption under the tax code, said Sandra McDonald, a principal at IMPA financial adviser McDonald Partners Inc., a California-based firm that specializes in public power bonds.
Citi is the senior manager on the transaction, leading a team of four additional underwriters. Ice Miller LLP is bond counsel.
The IMPA supplies power to 52 Indiana-based municipal electric utilities and has enjoyed fairly stable financial measures - such as debt coverage and liquidity - for several years, according to credit analysts. After the transaction the agency will have a total of $1 billion in outstanding debt, of which about $35 million is floating-rate, McDonald said.
Despite the market's volatility over the last several months, public power bond issuance has remained relatively stable, she said, adding: "They're an essential service, which means they are a good credit in challenging times such as this."
Ahead of IMPA's sale, Moody's Investors Service affirmed its A1 rating on the system's debt and Fitch Ratings affirmed its A-plus rating. Standard & Poor's rates the debt A-plus. The bonds are not expected to be insured.
"The rating reflects IMPA's balanced and prudent resource plan, solid mix of low-cost power resources, and competitive wholesale rate," Fitch analyst Yvette Dennis said in a report on the upcoming bond sale.
The bonds are secured by the agency's net revenues, which come from the power sales contracts with its members. Under the contracts the members agree to buy all their power and energy from IMPA. The agency recently renegotiated most its contracts to extend through 2042.
Next week's bond sale will continue IMPA's strategy of developing a portfolio of power generating assets. It owns a 12.64% share in the Prairie State Project and a 12.88% stake in Trimble County Unit 2. Both plants are expected to have costs below regional market prices once they are finished, according to Moody's.
The Trimble County plant, which has four municipal utility owners, is expected to be on line by mid-2010. The unit will feature state-of-the-art emissions control technology, according to bond documents.
The $2.9 billion Prairie State Project has a total of eight owners and is expected to be among the cleanest coal-burning plants in the U.S. when finished. It's expected to begin operating in mid-2012.
Despite claims to clean-coal technology, both plants are subject to the uncertainty over future regulatory action involving greenhouse gas emissions, warned analysts.
IMPA officials said they expect to issue another $80 million in revenue bonds in late 2010 to mark their final Prairie State financing.
