The Connecticut Municipal Electric Energy Cooperative (CMEEC) and its sister organization the Connecticut Transmission Municipal Electric Energy Cooperative in late April announced that they have closed on a forward refunding bond sale that will enable them to refinance approximately $60 million dollars of existing higher interest rate tax-exempt debt.
The transaction will reduce interest payments on debt by a net present value of approximately $9 million over 20 years. The refinancing will also have a positive impact on transmission revenues over the same time period, CMEEC noted.
“With interest rates at historic lows, and CMEEC’s excellent credit rating, CMEEC had the opportunity to substantially lower its debt service on the pre-existing bonds, an opportunity that the Board of Directors wholeheartedly supported,” CMEEC CEO Dave Meisinger said in a news release.
Meisinger told Public Power Daily that CMEEC’s transaction is a forward refunding that locks in rates for bonds to be sold and closed in the future. Conversely, if public power utilities had the ability to sell advance refunding tax-exempt debt, with a near-term closing, this would allow public power entities to access today’s historically low interest rates and immediately access capital and start realizing interest savings on existing debt.
CMEEC’s refinancing effort pre-dated the Covid-19 pandemic and was primarily designed to reduce its long-term interest costs, he noted.
“We went ahead with a forward refunding transaction that locked in long-term savings on our debt, which is a big win for us. However, CMEEC and its members will not start to realize those savings until we can settle the refinancing transactions in late 2021 and late 2022 (the call dates of our existing debt),” he noted.
Meisinger noted that the American Public Power Association has been advocating for federal legislation that would allow municipal utilities to utilize advance refundings of their existing tax-exempt debt, versus waiting until near the call date of that debt, as is required under current federal law.
“The ability to close an advance refunding on our tax-exempt debt, ahead of those call dates would have allowed us to realize those savings immediately, versus waiting more than one year for them to start. We could have continued to wait and see if new legislation was forthcoming, but given the market conditions we decided to lock in the savings at this time,” he said.
Mike Mace, of PFM Financial Advisors LLC, CMEEC’s financial advisor for the recent refinancing transaction, said that it would be nice to have the flexibility of conventional tax-exempt advance refunding as a tool to close a transaction today, which would immediately start the flow of savings to CMEEC and its members.
“Fortunately, CMEEC did have a different structural option that allowed it to lock in current market rates and generate savings commencing in 2021, 2022 and beyond,” Mace told Public Power Daily.
Given the bond market volatility and uncertainty, CMEEC’s ability to move quickly allowed them to lock in rates in mid-April that were roughly 33 basis points, or 1/3 of 1%, lower than if they were in the market today.
“CMEEC achieved sub-3% rates for a refunding of its 5% bonds, which will produce nice savings for members,” Mace said.
“It is especially satisfying now, in the midst of this pandemic, to lock in long-term savings to our municipal electric ratepayers,” CMEEC Chairperson of the Board of Directors Kevin Barber said. “This refinancing also helps the CMEEC members maintain their low retail electric rates.”
CMEEC’s member municipal electric utilities are the Jewett City Department of Public Utilities, Norwich Public Utilities, Groton Utilities, Bozrah Light & Power, Third Taxing District of the City of Norwalk and South Norwalk Electric and Water.
