The Long Island Power Authority offered to redeem up to $2.5 billion of its bonds as part of an overhaul intended to lower electricity rates to its customers.
The offer is limited to certain maturities within several series of capital appreciation and current interest bonds from 1998 to 2012, LIPA said in an announcement Tuesday on the Municipal Securities Rulemaking Board’s EMMA website. Total par amount (or, for capital appreciation bonds, maturity amount) of the eligible bonds is $4.33 billion.
LIPA has about $7 billion in debt outstanding.
LIPA is to announce what bonds it will select for redemption by Dec. 13. Settlement is expected on Dec. 17.
LIPA is offering to pay the interest due on the current interest bonds up to but not including the settlement date.
As part of the reform of LIPA that passed in July, the government authorized the securitization of up to $3 billion in debt, said LIPA vice president of finance Ken Kane.
Between Nov. 18 and Dec. 17, a utility debt securitization authority is to be set up. LIPA is hoping this will have a AAA rating. In this period the securitization authority will sell highly rated bonds. The securitization authority will use the proceeds from this sale to pay for the right to receive a portion of LIPA’s electrical charges. LIPA will use this payment to pay for the redemption of its bonds, Kane said.
After Dec. 17 a portion of LIPA’s customer payments will be transferred to the securitization authority, Kane said. The securitization authority will use the money to pay off its bonds.
After this redemption, LIPA may use the securitization authority to refinance a $1 billion or more of its existing debt, Kane said. New York is allowing the securitization authority to handle up to $3.5 billion of LIPA’s debt.
The securitization should lower LIPA’s debt load and its debt service costs to the benefit of LIPA’s credit. However, there is nothing surprising in today’s announcement, Fitch managing director Dennis Pidherny said.. Other factors led Fitch to downgrade LIPA’s senior revenue bonds to A-minus from A on Sept. 5, he said.
Moody’s Investors Service downgraded LIPA’s senior bonds to Baa1 from A3 in May, citing Hurricane Sandy. Standard & Poor’s put LIPA’s A-minus rating on CreditWatch Negative in early July.
Goldman, Sachs & Co. and Morgan Stanley & Co. are serving as the dealer managers for the tender offer.
Those interested in redeeming their bonds or getting more information should consult the EMMA statement or contact Globic Advisors at (212) 201-5346.
Public Service Enterprise Group, Inc. is expected to take over LIPA operations at the start of the calendar year. LIPA is expected to be a holding company, allowing for continued tax-exempt bond issuance.