CHICAGO-- Minnesota Municipal Power plans to enter the market in the coming days with a $20 million tax-exempt sale of electric revenue bonds to help finance a bioenergy project.
Ahead of the sale, Moody’s Investors Service affirmed the agency’s A3 rating and revised its outlook to positive from stable on $260 million of debt. Fitch Ratings affirmed its A rating and stable outlook.
Bank of America Merrill Lynch is senior manager with Morgan Stanley and RBC Capital Markets also serving on the underwriting team.
Proceeds of the sale will help finance a portion of the Hometown BioEnergy project, an 8 megawatt biomass generating station the joint power agency is building. The federal government is providing a $9 million grant for the project.
The bonds are secured by the agency’s net revenues which come primarily from payments under long-term power sales agreements with 11 participating municipal electric systems. A 12th member is slated to join the system in 2018. The bonds are further secured by certain personal property and contract rights comprising the system.
“The positive outlook considers MMPA’s strong cash position and consistent and sound financial performance and acknowledges improved diversification of the agency’s owned generation when the Hometown BioEnergy Project achieves operation as planned,” Moody’s said.
Moody’s rating reflects positive factors such as the weighted average credit quality of the agency’s eleven municipal members, the agency’s independent rate setting ability, and sound financial performance. Factors that offset those strengths include some supply concentration risk and concerns that the agency’s cost competitiveness position could weaken slightly as it positions itself to meet the long-term needs of its growing membership.
The agency is unique among its peers in that it does not employ staff, instead outsourcing management and operations to third party vendors. The agency has a longstanding management relationship with Avant Energy Inc. Although the length of its relationship is viewed as a strength, it subjects MMPA and its members to some risks as a change in provider could result in higher costs and/or operational disruptions which would put downward pressure on the rating, Fitch noted.
MMPA customers are concentrated in the northern and southwestern suburbs of the Minneapolis-St. Paul metropolitan area; they collectively serve approximately 60,000 residential and commercial customers and a total population of approximately 125,000.
The agency’s power is generated through a mix of agency owned and purchased power with its primary asset being the Faribault Energy Park, a 256 megawatt natural gas/oil fired combined cycle plant.