CHICAGO The Ohio Air Quality Development Authority today will vote on the sale of $241 million of pollution control revenue refunding bonds a transaction that will allow FirstEnergy Generation Corp. to exit the auction-rate securities market.
The deal comes a few months after several subsidiaries of FirstEnergy Corp. including FirstEnergy Generation Corp. voted to convert all $530 million of their outstanding auction-rate debt into fixed- or variable-rate debt. FirstEnergy, an Akron-based for-profit, includes seven utility subsidiaries as well as FirstEnergy Generation and FirstEnergy Nuclear Generation Corp., and is the fifth largest investor-owned utility in the U.S.
The Ohio authority would act as the conduit issuer on the transaction.
The utility hopes to enter the market as soon as possible, said authority executive director Mark Shanahan. Details of the structure of the bonds were still uncertain as of yesterday, including whether the bonds would be fixed- or variable-rate.
"A lot of utilities have been waiting [to finalize the structure] until near pricing because of volatility in the market," Shanahan said.
The bonds would likely be enhanced with a letter of credit. FirstEnergy officials were expected to announce the finance team today.
The authority originally issued the pollution control bonds in 2007 as part of FirstEnergy Corp.'s company-wide debt restructuring plan required under Ohio's revised utility regulations. In 2000, Ohio deregulated its energy market, and required utilities to separate generation which was deregulated from transmission and distribution, which remain regulated. FirstEnergy created FirstEnergy Generation Corp. to govern its fossil fuel business, and FirstEnergy Nuclear General Corp. to oversee its nuclear fuel business.
As part of its effort to comply with state regulations, FirstEnergy restructured at least 10 outstanding debt issues. At the time, the restructuring was one of the most drastic done by a power utility in the state in accordance with the regulation, said officials.
The upcoming refunding would follow several similar transactions by FirstEnergy subsidiaries, and will likely be followed by several more this year, according to the company's first quarter report released May 1.
Between Feb. 27 and April 2, some of FirstEnergy's subsidiaries repurchased outstanding auction-rate debt using a short-term loan to finance the effort, according to the company's first-quarter results released on May 1. Two more subsidiaries, Reading, Pa.'s-based Metropolitan Edison Co. and Pennsylvania Electric Co., remarketed their bonds in late April into a variable-rate mode supported by a letter of credit. And last Friday, FirstEnergy Nuclear Generation Corp. refunded nearly $180 million of auction-rate bonds into variable-rate debt.
"Subject to market conditions, the companies plan to remarket or refund the rest of these securities over the balance of the year, either in fixed-rate or variable-rate modes," the quarterly report said.
Last month the authority approved a similar transaction to refund $218 million of auction-rate debt sold by JMG Funding and Ohio Power Co. The refunding came after interest rates on that auction-rate debt spiked up to 9.5% from 3.5% following auction failures.