CHICAGO — Two Midwestern joint-power agencies will enter a crowded field of borrowers this week with deals that include a mix of tax-exempt securities and taxable Build America Bonds to finance their share of $1 billion in cost overruns for the Prairie State Energy Campus.
The Northern Illinois Municipal Power Agency aims to sell roughly $70 million of revenue bonds mid-week with a final maturity in 2042. Citi is the senior manager and McDonald Partners is serving as financial adviser. The bonds are secured by net revenues from the agency’s power sales agreement.
The Missouri Joint Municipal Electric Utility Commission on Thursday will sell $80 million of debt that carries a final maturity in 2042. JPMorgan is the senior manager and McDonald is adviser. The bonds are secured by unconditional, take-or-pay purchased power contracts.
Proceeds will finance additional costs for the Missouri agency’s 12.33% stake in the project and the Illinois agency’s 7.6% stake.
The nine Prairie State owners are covering the overruns for the coal-fired plant under construction in Washington County, Ill., through a mix of borrowing, cash, and reserves.
The participating agencies over the summer negotiated an agreement with the construction contractor Bechtel Power Corp. that has established a fixed price of $4 billion, up from a previous price tag of $3 billion, and an original estimated cost of $1.8 billion.
While the rising costs have fueled critics’ arguments against the value of the project, issuers and credit analysts believe Prairie State’s benefits — although weakened — remain solid and its energy prices competitive.
The project will allow participants to generate their own power — locking in prices through 2042 — and avoids the risk associated with buying power on the open market. The adjacent coal mine eliminates transportation risks. Construction is about 54% complete.
Ahead of the sales, the Missouri agency received affirmation of its A-minus rating from Fitch Ratings and equivalent A3 rating from Moody’s Investors Service. The power agency has $757 million of parity bonds outstanding. Fitch affirmed the Illinois agency’s A-minus rating and Moody’s affirmed its A2 rating on the issue and $461 million of parity debt.
While the amended contract “provides certain guarantees, the successful completion of the PSEC project at a cost and schedule consistent with the revised terms remains a principal rating driver,” Fitch analysts wrote in their reports.
The plant’s first 800-megawatt supercritical unit is scheduled to open by December 2011 and its second 800-megawatt unit by August 2012. Moody’s wrote that its ratings factor in the “construction risk of Prairie State, as well as the uncertainty about the scale, scope and depth of regulatory intervention regarding greenhouse gas emissions and renewable regulation.”
The Missouri agency was established in 1979 and its membership includes 60 retail electric utilities. Moody’s said its rating reflects the credit quality of the state utility’s participants and the increased liquidity and management demands of the transition from operating primarily as a purchaser of power to an owner.
The NIMPA was formed in 2004 and has three members — Batavia, Geneva and Rochelle — all cities in Illinois. Fitch said its rating is supported by the strength of the power sales contract, the credit quality of the three cities, and management support from the Indiana Municipal Power Agency.
Prairie State is one of the only new coal-fired plants being built in the U.S. because of the current regulatory environment and it will be one of the largest. Its supporters argue it will be one of the most advanced coal-fired facilities, with environmental controls that meet stricter pollution-control standards.
Detractors claim it will be one of the largest new producers of greenhouse gases and will force customers to pay higher prices for energy initially.