CHICAGO — The Omaha Public Power District will hit the market Thursday with $120 million of taxable Build America Bonds while delaying a $125 million refunding issue amid lower-than-expected market savings.
The OPPD had targeted a 5% net present-value savings on the refunding issue — or $6 million over the life of the bonds — but decided to postpone the sale Friday due to rising rates and heavy supply.
“The market was rocky, and the refunding economics ended up looking iffy,” said John Thurber, the district’s division manager of finance. “Some of the maturities … are above our savings target, but we decided there were not enough of those now for us to go ahead.”
If interest rates continue to hurt portions of the refunding, the utility would likely scale down the size with maturities in which savings remain on target and return to the market, he said.
The OPPD is the fourth-highest rated public utility in the U.S. and the 12th largest based on customers served. It serves Omaha and 47 other cities in a 5,000-square-mile area of Nebraska. Its competitive position is strengthened by Nebraska’s status as an all-public power state that prohibits investor-owned utilities.
Goldman, Sachs & Co. is the book-running senior manager on the sale. Bank of America Merrill Lynch is co-senior, and seven additional firms round out the underwriting team. Barclays Capital Inc. is financial adviser and Kutak Rock LLP is bond counsel.
The BABs mature from 2022 through 2041. The debt is secured by a pledge of the district’s revenues, which have risen 2% annually since 2002, according to an investor presentation.
Proceeds from the BABs will reimburse the district for cash it has spent on projects that are part of a $1.1 billion capital plan, Thurber said. The district expects to finance the plan through $700 million of cash and $400 million of borrowing through 2014.
The OPPD gets its power from several sources, including coal, nuclear, natural gas, and renewable energy.
Its agency enjoys sole rate-setting authority, and it maintains some of the lowest rates in the region. Its rate covenant pledges to set rates to meet 100% of all costs, including debt service, operations, and maintenance expenses. The utility also maintains a reserve fund to cover maximum annual interest costs.
Moody’s Investors Service rates the utility’s $1.5 billion of outstanding debt Aa1. Standard & Poor’s rates it AA.
Analysts praise the district for its strong market, which includes a regional economy that escaped the worst of the national recession, as well as a sophisticated management team and low rates.
Like most power utilities, the OPPD faces challenges tied to future greenhouse emissions regulation and air-quality issues, analysts said.