DALLAS — San Antonio's CPS Energy expects to see interest-rate savings of about 8.5% from a $315.7 million revenue bond refunding, officials said.
The bonds are expected to price July 14, according to CPS chief financial officer Paula Gold-Williams.
Goldman Sachs is book-runner with managing director Jill Toporek as lead banker. Toporek has managed Goldman's Energy Group for nearly 15 years.
Ted Sobel, managing director and head of municipal finance at co-manager Samuel A. Ramirez & Co., is also working on the deal.
CPS is using three financial advisors on this issue: First Southwest Co., Public Financial Management Inc. and Estrada Hinojosa & Co., which it recently added.
"The market has become so complex that we thought bringing in a third party would give us an opportunity to look for more diverse solutions," Gold-Williams said. "They are doing exactly what we wanted them to."
The deal could be larger than the $315.7 million of 2007 bonds already identified as refunding targets, said Linda Dzierzanowski, senior director for finance and treasury at CPS.
"These definitely looked like the best candidates," Dzierzanowski said. "We could see anywhere from $25 to $30 million or about 8.5%. It meets all of our parameters."
If the market stays steady, CPS expects a very favorable pricing. But Gold-Williams recalls a refunding in 2013 in which the market moved 100 basis points against the issuer during the day.
"It settled 50 basis points harder against us," she said. "We don't underestimate that the market can shift. Right now, it's looking good, and we're having daily marketing calls."
CPS, formerly known as City Public Service Co., could hardly ask for better ratings. The company carries the highest ratings issued in the public power sector at Aa1 from to Moody's Investors Service.
"The rating recognizes the ownership of CPS by the city of San Antonio, the nation's 7th largest city, which carries a Aaa rating on its general obligation bonds, along with a very capable utility management team," Moody's lead analyst Dan Aschenbach wrote in his June 25 ratings report. "The stable rating outlook acknowledges that adjusted debt service coverage has registered a favorable trend, which is a credit positive."
San Antonio also owns the San Antonio Water System, one of the largest public water utilities in the nation.
Fitch Ratings assigns the combined utilities a AA-plus rating that includes the upcoming deal.
"Financial margins for bondholders were strong in fiscal 2015 with 2.47x debt service coverage of revenue bonds and 1.71x all-in coverage after the large transfer made annually to the city's general fund," according to Fitch analyst Kathy Masterson. "Liquidity is healthy with 206 days operating cash."
Masterson considers debt levels of $7,550 per electric utility customer "above average."
"Although CPS Energy makes a large annual transfer to the city's general fund equal up to 14% of gross revenues, the consistent margins for bondholders and competitive rates mitigate concerns about this practice," Masterson said. "Management's financial and rate model indicates continued strong financial margins without base rate increases over the next few years."
According to Moody's, CPS has $3.4 billion of senior lien bonds outstanding and $1.73 billion of junior-lien bonds rated a notch lower at Aa2.
The utility is considering issuing about $435 million of new money bonds in the fall that could come in one or more issues, Gold-Williams said. If issued, those bonds would cover traditional utility projects, she said.
As measured by customers, CPS is the largest public power utility in Texas and the fifth-largest in the nation. Nearby Austin Energy is the state's second-largest and works with CPS on joint projects, including the South Texas Project nuclear power plant.
As a virtual monopoly in rapidly growing Bexar County, CPS' service area extends to parts of seven adjacent counties. CPS also has several wholesale contracts with neighboring electric systems with revenue representing about 15% of revenues.
The San Antonio metro area has 2.3 million people, more than double the population of 1980. While about 90% of its customers are residential, CPS also provides power to San Antonio's military bases, including Ft. Sam Houston Army post.
To the south, San Antonio has benefitted from oil and gas operations in the Eagle Ford Shale Basin, one of the most productive regions in the country. With oil prices off about 40% from their 2014 highs, operators have recently cut back on the number of rigs in active service.
During the past several years the San Antonio area's unemployment rate has been below the U.S. average and growth in personal incomes continue to be a positive factor, analysts said.
"The highlights of the strengthening expansion include the growth from the Eagle Ford shale energy industry and gains in military cyber security and medical activity, commercial aerospace, manufacturing and an above-average population gain," Aschenbach said. "Customer growth continues to occur with over 14,000 new electric customers in FY2015 over FY2014."
Seen as an innovator in energy conservation and alternative sources, CPS is playing a part in the development of San Antonio's extended River Walk with its EPIcenter project at the site of a mothballed power plant.
CPS chief executive Doyle Beneby envisioned EPIcenter as a place for energy education and innovation development. The "EPI" stands for "Energy Partnership Innovation." Several CPS contractors are contributing to the fundraising effort for the project that will serve education and think tanks in the San Antonio area.
The site of the plant is in the "Mission Reach" section of the San Antonio River Walk that in recent years was extended to the city's historic Spanish missions from downtown. The five-acre campus will pay homage to the historic "Station B," which provided gas-powered electricity to San Antonio for 95 years until it was decommissioned in 2009.
"Building on the tradition of the public/private partnership that has forged the Mission Reach, we hope to create a magnet for driving energy innovation and addressing the complex challenges related to providing affordable, reliable energy," Beneby said in announcing a $15 million lead donation to the project.
