BRADENTON, Fla. - The South Carolina Public Service Authority’s revenue bonds have been downgraded to A1 from Aa3 by Moody’s Investors Service ahead of a planned $1.7 billion sale.
The authority, owned by the state and also known as Santee Cooper, had about $5.5 billion of outstanding revenue bonds as of Dec. 31.
“The downgrade and A1 rating assignment reflect our belief that the expected sale of a part of Santee Cooper’s ownership interest in Summer Nuclear Units 2 and 3 will take longer than initially expected resulting in further tightening of the utility’s financial and competitive position,” said Moody’s analyst Dan Aschenbach.
Santee Cooper owns 45% of two new nuclear units being built at the Virgil C. Summer Nuclear Station by investor-owned South Carolina Electric & Gas Co., which owns the remaining 55% of the units. Santee Cooper is working to reduce its ownership in the project.
Last week, Fitch Ratings revised its rating outlook to negative and assigned a AA-minus rating to the upcoming bond sale.
Though Fitch said a recent contract extension with Santee Cooper’s largest customer is positive, the outlook revision reflected challenges going forward such as slower growth, a large capital program, and ability to manage excess ownership in the nuclear plant.
Standard & Poor’s revised the outlook on its AA-minus rating to stable from negative citing the utility’s more predictable revenue stream because of the contract extension. S&P assigned an AA-minus to the bonds being sold later this month.
In response to Moody’s one-notch downgrade, Santee Cooper spokeswoman Mollie Gore said the utility retains double-A ratings from Fitch and S&P.
“Santee Cooper remains highly rated among our utility peer group, and we are moving quickly on the opportunity to extend debt over the life of our assets - an opportunity that comes from successfully negotiating a contract amendment with our largest customer,” she said.
The utility recently extended the earliest termination date of its supply contract with Central Electric Cooperative to 2058 from 2030.
Traditionally, Santee Cooper has amortized its debt based on the potential termination of the Central Electric contract, and the expected lives of capital assets, according to the preliminary official statement for the looming sale.
With the contract extension the authority plans to extend the average life of its debt going forward to fund current and future projects, and to conduct a multi-year refinancing program.
“While the size and scope of this restructuring program will evolve over time, the authority currently projects that up to $900 million of bonds maturing through 2031 could be refunded and extended over the term of this program, in addition to the revenue obligations to be refunded with the proceeds of the 2013 bonds,” the POS said.
The authority may also defer the principal amortization of future capital projects receiving bond proceeds.
The South Carolina Public Service Authority plans to sell $1.7 billion of revenue and refunding bonds during the last week of July, officials said.
That deal is structured in four series to be sold as $788.36 million of tax-exempt bonds maturing between 2043 and 2053; $369.5 million of tax-exempt refunding bonds maturing between 2037 and 2046; $212.9 million of taxable bonds maturing in 2042; and $329.75 million of taxable bonds based on the London Interbank Offered Rate index plus a spread.
Goldman, Sachs & Co., Barclays Capital Inc., and Morgan Stanley & Co., will be the book-runners for various series.
Public Financial Management Inc. is the authority’s financial advisor.
Haynsworth Sinkler Boyd PA is bond counsel. The McNair Law Firm PA is underwriters’ counsel.