DALLAS — CPS Energy of San Antonio tomorrow will price up to $380 million of Build America Bonds for capital projects, including a new coal plant that is nearing completion.

The size of the issue could range between $350 million to $380 million, depending on market conditions, said David Jungman, senior director of finance for CPS.

CPS, the largest municipal utility in the nation, is also working with financial advisers Public Financial Management Inc. and Estrada Hinojosa & Co. to adjust call provisions on some of the BABs.

About $250 million of the taxable bonds will carry make-whole provisions, while some will be callable in 10 years if the penalty is within the 50 basis points the utility would expect to pay, Jungman said.

The utility offered a similarly sized issue of BABs last year, which Jungman called “very successful.”

Barclays Capital is senior manager on the deal with seven co-managers. Fulbright & Jaworski is bond counsel.

The bonds have ratings of AA from Standard & Poor’s, Aa1 from Moody’s Investors Service, and AA-plus from Fitch Ratings.

The new series bonds are secured by a first lien on CPS’ net revenue of the electric and gas systems on parity with the outstanding senior-lien bonds.

“The high-grade, long-term credit rating is based on the utility’s significant competitive rate advantage, favorable cost structure, conservative financial record, and sound risk management program,” Moody’s analysts noted. “CPS was able to raise its electric base rates by 7.5% in February 2010 with a unanimous City Council decision.”

Fitch analysts commented on the fact that CPS recently concluded several months of litigation with its investor-owned partner on the South Texas Project nuclear plant that is applying for federal permission to add two reactors to the existing two.

“Senior management has navigated through a politically tumultuous period for CPS in relation to its investment in the STP expansion project,” Fitch said. “Positively, management has improved communication and transparency with its City Council to repair their historically solid working relationship.”

Under an out-of-court settlement announced last month, the private partners operating under the name Nuclear Innovation NA will proceed with STP expansion, while CPS Energy’s stake will be reduced from its previous 40% to 7.625%.

CPS and the city of San Antonio sought to back away from the project after costs exceeded those they had expected to pay. Another municipal utility, Austin Energy had already bowed out of the expansion plans.

Funds from tomorrow’s bond issue will be used for the conventional coal plant known as J.K. Spruce Unit 2 and other capital projects. The Spruce plant is expected to be completed later this year, and CPS may have one more bond deal that will include some financing for the project, Jungman said.

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