CHICAGO - The Nebraska Public Power District saved roughly 61 basis points by using the taxable Build America Bond program for a portion of its $170.4 million revenue bond sale last week.
The district borrowed at an overall true interest cost of 4.72% on the deal, which included three series that were oversubscribed.
The Series A for $50.4 million sold as BABs with term bonds due in 2026 and 2035 and a 10-year traditional municipal call feature, according to district chief financial officer Traci Bender.
The bonds paid coupons of 6.6% and 7.39%. Morgan Stanley served as the lead manager.
The district estimated its savings of using the federal program - once the 35% direct-pay interest subsidy is applied - lowered its borrowing costs by 61 basis points.
While a handful of other utility issuers have tapped the BAB program in recent months as its popularity grows, the district's deal was the first from Nebraska.
The Series B for $100 million of non-BAB taxable bonds matures in term bonds in 2013 and 2014 and the Series C of tax-exempt bonds matures serially between 2010 and 2020.
Proceeds of the BABs and the tax-exempt series will primarily finance transmission system upgrades that will allow the district to bring wind-produced energy into its grid.
The non-BAB taxable bonds will finance capital projects and refund taxable commercial paper associated with the purchase of nuclear fuel.
The wind energy would come from purchase power contracts with investor-owned utilities.
"It currently offers a lower cost overall because of the tax credits investor-owned utilities receive," Bender said. The district would use cash and other funds to make those purchases, not bond proceeds.
Ahead of the sale, Fitch Ratings affirmed its A-plus rating on the credit, while Moody's Investors Service affirmed its A1 and Standard & Poor's affirmed its A rating.
The district had $1.7 billion of revenue-backed debt outstanding with 1.46 times debt service coverage in 2008.
The bonds are secured by the district's net revenues.
"The A1 credit rating reflects the utility's well-established competitive cost structure and diverse power supply which translates into competitive wholesale and retail electricity rates, NPPD's sound finances, and strategic planning, including its integrated resource plan," Moody's wrote.
The rating also factored in the challenges the NPPD faces with its Cooper Nuclear Station due to the potential for nuclear decommissioning ordered by regulators and the expected increased capital requirements to ensure the utility's coal-fired power plants meet evolving clean air regulations.
The system's grid is currently supported by 24% nuclear power, high for a power utility, while coal represents about 62%. The district purchased 11% of its power in 2008 and the rest came from gas, oil, wind and hydro power.