August 24, 2010
California

Wind-energy purchases lead California power agency to borrow $533 million

By Christopher Palmeri and Esmé E. Deprez, Bloomberg, www.bloomberg.com 23 August 2010

Southern California Public Power Authority, provider of electricity to almost 5 million people, plans to sell $533.1 million of municipal bonds in the biggest scheduled tax-exempt sale of the week.

JPMorgan Chase & Co. will lead marketing of the debt, which is rated fourth-highest by both Standard & Poor’s and Fitch Ratings, at AA-. The authority expects to sell the biggest tranche, $40.8 million in 20-year maturities, at 40 basis points, or 0.40 percentage point, above AAA rated municipal bonds, said Vernon Oates, finance and accounting manager.

“The fact that it’s a AA- issue, with a little extra yield in a high-tax state, this is really going to dominate the calendar,” said Howard Cure, director of municipal bond research at Evercore Wealth Management in New York, which oversees about $1.5 billion.

The proceeds from the authority sale will be used to prepay for power from the Windy Point/Windy Flats Project, a 114- turbine wind-energy farm in Washington state. The Pasadena-based authority is purchasing the electricity on behalf of the Los Angeles Department of Water and Power and the city of Glendale.

California businesses, including utilities, are required by state law to reduce their greenhouse-gas emissions such as carbon dioxide to 1990s levels, in part by purchasing more renewable energy, Oates said. The authority lowers the cost by prepaying for the electricity, he said.

Columbia River

The Windy Flats Project spans 26 miles (42 kilometers) along the Columbia River and will generate 500 megawatts of electricity upon completion in 2011, enough to power more than 250,000 households per year, according to Cannon Power Group, the San Diego-based developer of the facility.

Yields on 20-year AAA tax-exempts fell to a record-low 3.68 percent on Aug. 20, according to Municipal Market Advisors, an independent research firm that began the index in 2001.

Twenty-year municipal energy bonds with ratings similar to those of the Southern California power authority yielded 4.44 percent on Aug. 20, the lowest since October, according to Bloomberg Fair Market Value data.

Southern California Power Authority’s previous sale of tax- exempt debt was in May, when it offered $110 million. Tax-exempt bonds from the May sale maturing in 2027, the biggest tranche of that issue, traded Aug. 20 at an average yield of 3.63 and price of 112.8, compared with a 4 percent yield and a price of 109.85 at issuance.

Seventeen-year AA energy bonds, one level higher, traded Aug. 20 at a yield of 4.21 percent, Bloomberg Fair Market Value data show.

Public power bonds received no ratings downgrades from Fitch in the second quarter. Power was one of only three areas of eight to earn that distinction. Seven power bond issues were upgraded, Fitch said in an Aug. 19 report.

This week’s issuance is slated to drop to $3.7 billion, the lowest for a regular trading week since Sept. 4 and down from about $7.1 billion in debt last week, according to data compiled by Bloomberg.

Following are descriptions of pending sales of municipal debt in the U.S.:

HOUSTON, America’s largest city by population after New York, Los Angeles and Chicago, plans to issue $229 million in revenue bonds as early as this week to refinance debt. The issue is rated third-highest by both S&P, at AA, and Moody’s Investors Service, at Aa2, and fourth-highest by Fitch, at AA-. Marketing will be led by RBC Capital Markets. (Updated Aug. 23)

MIAMI-DADE COUNTY, Florida’s largest, plans to issue $217.3 million in debt, including $203.9 million in Build America Bonds, as early as this week. The county, rated third-highest by S&P, at AA, and fourth-highest by Moody’s, at Aa3, will use the majority of the issue to fund transportation projects. Loop Capital Markets LLC will lead marketing of the bonds. (Updated Aug. 23)

PENNSYLVANIA TURNPIKE COMMISSION, set up in 1937 to help manage the state’s highways, plans to issue about $600 million in tax-exempt debt and taxable Build Americas as early as this week. The revenue bonds, rated fourth-highest by Moody’s at Aa3, will be used for capital-improvement projects. Bank of America Merrill Lynch will lead marketing of the notes.


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