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HomeMy WebLinkAboutBPMC Meeting - November 30, 1988 2RECORD UOPY nfo Jes FILE N@ RO 32) {mia BRADLEY LAKE HYDROELECTRIC PROJECT we 3 o/e¢ Project Finance Team Newsletter vw Volume 1 Here finally is the promised "newsletter" with a recap of the trip to New York and outline the next steps in the process of issuing long term debt. The trip was extremely successful. We accomplished our goal of introducing the project to the rating agencies and insurance companies and getting them inter- ested in the financing. Each group that saw the presentation was impressed with it, and seemed to be genuinely interested in the project. Following is a short summary of each meeting and its results. Tuesday, September 20 1) CFC -- Marty Crowson, Executive Director Steven Lilly, Director of Corporate Finance CFC is supportive of the project, but probably can not be involved as a direct lender. They could possibly issue a guarantee of the bonds, though even this is likely to be difficult, given the participation of non-co-ops in the project and the structure of CFC's guarantee program. 2) Moody's -- Robert Tucker, A.V.P. Far Western Region Claire Cohen, V.P. State General Obligation Joe Rosenblum, V.P. Western Region Moody's had not delved deeply into the information which had been sent to them. None of those present were utilities experts, as Moody's assigns financings to. SS “analysts based on region not on project type. They were concerned about the overall condition of the Alaska economy and the mechanics of the State's moral obligation pledge. They were also concerned about the validity of the take or pay obligation of the utilities, and to a lesser extent about the risk that bonds will be sold_and the project not completed. Questions were very basic, and should get more detailed as the process continues. They asked to receive monthly progress reports and financial information as it is available. Wednesday, September 21 1) Standard & Poors -- Phil Edwards, Manager, Utilities Group Tony Arthur, Chairman of Alaska Committee . John Costagliola Utilities Group S&P had clearly read the information sent to them. They were very concerned about the validity of the take or pay obligation, especially given that it does not kick in until the project is complete. They stated that if bonds were sold prior to completion, any rating based on the project would be a provisional rating. A rating based merely on the State's moral obligation would not be 4239/913/1 . 35 S-ktz Bradley Finance News. ter November 3, 1988 Page 2 provisional at any time. When asked if a rating of A provisional was stronger than a straight A- rating, they were unable to give a clear answer, but prom- ised to look into it and see. (Bud Canaday later stated that provisional ratings are not at all uncommon and should not adversely affect bond pricing). Edwards promised to find out if S&P would be able to give us a number of preliminary ratings -- one based on the straight moral obligation, one based on the project, assuming that take or pay obligation occurs only after project completion and one based on project assuming that the take or pay obligation occurs as soon as the bonds are sold. Edwards stated that to issue a prelim- inary rating based on the strength of the project he would need financial information and load growth projections from each of the utilities. This concerns him much more than the strength of the Power Authority, as it is the utilities that will be providing the cash flow stream that secures the bonds. He should be letting us know if he is able to give us preliminary ratings of any kind within the next few weeks. Tony Arthur raised another issue, which was that the Bradley Lake Project must prove to be self-sufficient, or the State's overall bond rating could suffer. This should not be a problem, but should be borne in mind. 2) MBIA -- Catherine Trott, V.P. and Manager, Utilities Dept. Lisa Cocks A.V.P. Utilities Dept. MBIA is interested in the project. They seemed concerned about the Alaskan economy and weather will need to come up here to see that we actually do not live in igloos. They too were concerned about the take or pay obligation and the completion risk. Another concern was the issuance of additional bonds for the project, and they were concerned about individual rate covenants for each of the utilities.They want their lawyers to look at the documents. They also want to get audits, progress reports and executive summaries of FERC licenses. Again, I will try to centralize the flow of information through this office. 3) Bond Investors Guaranty -- Jane M. Eddy,V.P. Utilities Group. Mike McGuire, Jim Gerry, Sr. Analyst BIG seemed very interested in the project. Their lawyer attended the meeting and they had read the information provided. They too were quite concerned about the take or pay obligation and the completion risk. They had concerns about the Alaska economy and questions about the functioning of the State's moral obligation. They had a couple of minor legal questions which were answered. Thursday, September 22 1) AMBAC -- Bob Walsh,V.P. Utilities Group Shelly Stein, Utilities Group Kate Hackett, Utilities Group Mary McKean, attorney AMBAC was also very interested, had read the information and had their lawyer with them. They had concerns about the Alaskan economy and Alaska in general. They, like everyone else were worried about completion risk and the take or pay 4239/913/2 f Bradley Finance Newsietter November 3, 1988 Page 3 obligation. They also had some technical questions about the project which were answered, I think, to their satisfaction. These people will also have to come to Alaska to see that we're almost part of the U.S. 2) FGIC -- Chuck Silberstein, Manager, Utilities Group Mark Dennis, Associate, Utilities Group This company showed interest in the project, but was very concerned about the completion risk, and wanted the utilities to say that they were willing to make the take or pay obligation effective at the time the bonds are sold. They had not delved very deeply into the information that had been sent to them, but seemed to want to continue to be kept informed about the project. They also seemed not to want to do a lot of work before it was clear when we intended to issue bonds. In summary, the major concerns for all the people for whom we did the presen- tations were: 1) The validity of the take or pay obligation 2) The risk involved in the fact that the bonds are to be sold before the project is completed and before the take or pay obligation is in effect. 3) The structure of the State's moral obligation. 4) The financial condition of the utilities 5) The state of the Alaskan economy, though this was not nearly as big a worry as numbers 1 & 2 above to most of the people we met. Most of the people with whom we met want to receive additional information from both the APA and the utilities. In order to minimize confusion and maximize efficiency, I suggest that the information flow be coordinated through this office. Thus, I will collect information requested by the rating agencies and insurance companies, and will take the responsibility of insuring that infor- mation received from any source be distributed among the utilities, and other members of the finance team. A number of things have occurred since the New York trip. R.W. Beck and Associates has been selected as consulting engineer, and we will begin negoti- ating a contract next week. Also, S&P has asked for some follow up information which I will be putting together in the next week. This should allow them to move forward with the preliminary rating. Next Steps Task Responsibility Completion Date Follow-up with S&P re: provisional rating Rawitscher 11/11/88 Negotiate contract with Consulting engineers APA 12/15/88 4239/913/3 BRADLEY LAKE HYDROELECTRIC PROJECT Project Finance Team Newsletter Number 2 -- November 23, 1988 Negotiations with R.W. Beck, consulting engineer for the project, are complete. John Heberling, Project manager for Beck and Win Peterson, their Western Region Manager came to Anchorage on November 16, 1988 to explain their role in the financing and the information that they would need to proceed. Also in attendance were: Marcey Rawitscher, APA Bob LeResche, APA Jim Seagraves, Nuveen Tom Lovas, Chugach Electric Mike Kiech, ML&P Jim Palin, MEA Beck will perform an independent review of the project and prepare a report to be included in the official statement used to sell the long term revenue bonds. The focus of this report will be financial; it will address the Power Authority's ability to repay the revenue bonds being issued to pay for the construction of the Bradley Lake Project. They will examine the project itself, but only to ensure that it is not extraordinary in size or design and to discuss any risks to the project which might have an impact on the ability to repay the revenue bonds. The impact of the —project on the systems of the purchaser utilities will be analyzed, as will the purchasers' financial condition and projected load require- ments, again with an emphasis on how these things affect the Power Authority's ability to meet its revenue bond obligation. Beck will also perform analysis which will be useful in determining the size and timing of the bond issue. The last part of the consulting engineer's report will consist of opinions about the project and the utilities for investors. Beck will express opinions about the economics of the project -- is it a reason- able project given the needs of the utilities, and can they afford to pay for it. They will also give a technical opinion on the project itself -- can it work in the way the utilities want to use it, how great is the risk that the project can not be completed and operated after the bonds are sold. A proposed outline for the report and some sample charts are attached to this memo. In addition, Beck has offered to help any utility with their submission of additional information to REA for approval of the project. Their report will include the kind of analysis that REA has asked for from the 4382/918/1 Bradley Newlectcer November 23, 1988 Page 2 utilities and they are willing help with analysis done by the utilities for REA. After describing the report, Beck discussed the schedule they would like to follow for the preparation of the report. They understand that there are some technical issues that must be addressed before any financing is done, and that we do not want a consulting engineer report drafted before these are settled. The report does not have to be completed until just before the bond sale, which gives us plenty of time. What Beck would like to do, however, is to have the historical and financial analysis of the utilities done, and have agreed upon a format for the report by early next year. In this way they will be able to produce the final report quickly when we do want to move forward. Thus, we will be sending you a detailed request for information during the next few weeks. Our hope is that this information can be collected by December 31, 1988. We will schedule a meeting between Beck, the Power Authority and all the utilities by the middle of February to discuss the need for further information and the format of the report. 4382/918/2