Completion of $351 million bond issue
Jul 24, 2014
Western Minnesota Municipal Power Agency completes $351 million bond issue.
The Western Minnesota Municipal Power Agency (WMMPA) completed a very successful bond sale of $351,255,000 Thursday, June 26.
The majority of the funds from the bond issue will be used to finance construction of the Red Rock Hydroelectric Project at the existing Red Rock dam site on the Des Moines River near Pella, Iowa. Proceeds from the sale also will finance the completion of the WMMPA share of the CapX 2020 Fargo and Brookings transmission projects, and capital improvements at existing generation facilities, primarily the coal-fired Laramie River Station. Most of the bonds were sold at a premium, meaning that the total proceeds to be received from the sale will be about $390 million.
WMMPA will be the owner of the Red Rock Hydroelectric Project, which will be operated by Missouri River Energy Services (MRES). WMMPA has provided financing for all of the power generating and transmission facilities MRES uses to serve its 61 member municipal electric systems in the states of Iowa, Minnesota, North Dakota, and South Dakota. This was the largest bond sale in the history of WMMPA and will more than double the amount of debt outstanding.
WMMPA and MRES have a power supply agreement that entitles MRES to the output of all WMMPA-owned facilities. MRES also provides administrative services for WMMPA.
The true interest cost of the bonds was 4.05 percent and the average maturity is 21 years. The final maturity on the bonds is January 1, 2046.
“Due to the favorable market, we decided to upsize the deal by about $40 million,” said MRES CEO Tom Heller. All of the maturities were oversubscribed and several were oversubscribed by more than 10 times. Due to the strong demand for the bonds, we were able to re-price the bonds resulting in significant interest savings for our members.”
MRES projects that its total capital needs through early 2018 will be $420 million, so Thursday’s transaction will provide funding for more than 90 percent of those needs. In addition to Citi, four other firms – JP Morgan, Barclays, Wells Fargo Securities, and US Bancorp – were involved in the sale. Dougherty & Co. served as financial adviser while Orrick Herrington & Sutcliffe LLP was bond counsel.
“We are very pleased with all aspects of the sale,” said MRES Finance Director and CFO Merlin Sawyer. “Demand for the bonds was very high, due in large part to the strong credit ratings of WMMPA. The rates on these bonds were actually lower than for some recent transactions for slightly higher-rated entities. The favorable interest rates will help us maintain very competitive wholesale electric rates for our members.
“This was one of the last large transactions of the week, and, with a lack of other large issues on the docket for the next few weeks, investors were attracted to the WMMPA bonds. Also, WMMPA isn’t a frequent issuer of debt, so when we do come to the market, the bonds are well received. “An article about the planned bond sale in Wednesday’s Bond Buyer also may have been beneficial,” Sawyer said. Thursday’s issue, along with the existing $230 million of WMMPA debt, is rated AA-minus by Fitch Ratings and Aa3 by Moody’s Investors Service. Both agencies assigned a stable outlook to all WMMPA debt.