BRADENTON, Fla. - The South Carolina Public Service Authority took advantage of improving market conditions yesterday to price a new-money deal.
The state-run electric and water utility, popularly known as Santee Cooper, offered investors $411 million of tax-exempt Series A revenue bonds. The sale also was expected to include a taxable Series B, ranging in size from $50 million to up to $200 million, depending on market conditions.
"We are staying flexible as the taxable market has been somewhat unpredictable," authority spokesperson Mollie Gore said yesterday.
Series A originally was sized at $308 million, but the amount was increased and the deal repriced to lower yields for some maturities. After repricing, bonds due in 2038 yielded 5.75%, some priced at par and some at a discount.
Information on the Series B sale was not available yesterday afternoon.
Volatile market conditions caused Santee Cooper to waiver between yesterday and today to begin initial pricing. However, traders Tuesday reported that the municipal market was firmer as buyers returned, driving demand, and pushing tax-exempt yields lower by between five and 10 basis points.
"We moved ahead because the market took a favorable turn and we were able to respond," Gore said. "We want to get in at the best time, and it looks like that time is now."
Bond proceeds will be used for the authority's "pretty aggressive" $2.64 billion capital improvement program, Gore said. It includes two nuclear units and a coal-fired unit in the permitting stages, refunding of commercial paper, transmission system upgrades, and funding for cash flow.
The Series A tax-exempt bonds were structured with serial and term maturities ranging from 2010 to 2038. The taxable bonds mature in 2014. Both series of bonds are revenue obligations secured by a lien and pledge on the authority's revenue fund and the revenues of the system.
The deal received ratings of AA from Fitch Ratings, Aa2 from Moody's Investors Service, and AA-minus from Standard & Poor's. All three agencies affirmed their ratings and stable outlooks on Santee Cooper's outstanding debt, which totals $3.5 billion.
Analysts generally credit the utility's strong management and finances for its high ratings.
"Santee Cooper's financial results have been consistently sound while it has kept its rates relatively competitive," Moody's analyst Dan Aschenbach said in a review of this week's deal. "Fuel price volatility has impacted customer bills, but the utility's unregulated rate-setting authority is a well-established credit strength."
Fitch said it would continue to monitor Santee Cooper's ability to manage the implementation of its capital improvement plan to meet the increasing energy requirements of its customers.
"Looking forward, while Santee Cooper projects slightly lower margins and debt service coverage over the next three to five years, they are still expected to remain more than adequate for the AA rating category," Fitch analyst Joanne Ferrigan said in a report. "While management is looking to diversify its power resource fuel mix with the addition of a new nuclear generating unit, currently 80% of its energy is derived from coal-fired units, and costs associated with future restrictions on CO2 emissions may have an impact on Santee Cooper's favorable cost structure relative to its neighboring systems over time."
Standard & Poor's analyst David Bodek said the rating reflects the utility's low-cost, coal-fired generation capacity, although it dominates the generation portfolio. But he said "Santee Cooper can recover fuel and demand charges dynamically, which allays commodity price risks."
Despite increased fuel-related operating costs during the past two years, Santee Cooper's financial results for 2007 remained sound, while the utility maintained favorable statewide and regional power rate differentials, according to Aschenbach. Debt service coverage in 2007 was 1.85 times.
"Santee Cooper will have to continue to manage commodity price pressures going forward," he said. "The financial results for the first six months of 2008 indicated that Santee Cooper should maintain sound financial metrics with debt service coverage at the same level as 2007."
Santee Cooper is South Carolina's state-owned electric and water utility and the state's largest power producer, supplying electricity to more than 163,000 retail customers in Berkeley, Georgetown, and Horry counties, as well as to 29 large industrial facilities, the cities of Bamberg and Georgetown, and Charleston Air Force Base.
The utility also generates the power distributed by the state's 20 electric cooperatives to more than 700,000 customers in all of South Carolina's 46 counties and provides water to 137,000 consumers in Berkeley and Dorchester counties and the town of Santee.
This week's deal is being priced by Citi, Goldman, Sachs & Co., Merrill Lynch & Co., and Morgan Stanley. Barclays Capital Inc. is financial adviser. Haynsworth Sinkler Boyd PA is bond counsel and the McNair Law Firm PA is underwriters' counsel.