The Western Minnesota Municipal Power Agency (WMMPA) will close Oct. 29 on more than $322 million in taxable power supply refunding bonds.
The sale will be used to refinance existing tax-exempt bonds that WMMPA issued primarily to finance construction of the Red Rock Hydroelectric Project that is being built in Iowa along with other projects.
“We were able to capture a phenomenal market that will result in annual debt service savings of $1.9 million per year in each of the next 26 years,” said WMMPA Financial Advisor Mike Berwanger of Public Financial Management Company.
The issue of $322,020,000 will have an all-in true interest cost of 3.13 percent, which is the lowest in WMMPA history, Missouri River Energy Services (MRES) noted in a news release.
WMMPA is the financing agent for and owner of all power supply, transmission, and other projects that are used to serve members of MRES.
The total savings to MRES members will exceed $50 million over the term of the bonds. Net present-value savings will be $33 million, or 11.5 percent of the refunded bonds.
“The bonds were issued on a taxable basis since Congress withdrew the ability to advance refund bonds on a tax-exempt basis with the Tax Cuts and Jobs Act of 2017,” said MRES Finance Director and CFO Merlin Sawyer. “If WMMPA had the ability to do a tax-exempt advance refunding, the savings may have been more than $50 million higher.”
Tax-exempt advance refunding has historically been an important tool in reducing financing costs. In the five years prior to their repeal by the Tax Cuts and Jobs Act of 2017, tax-exempt advance refunding bonds provided net present value savings of at least $600 million to public power utilities.
MRES is a joint-action agency made up of 61 member municipalities in the states of Iowa, Minnesota, North Dakota, and South Dakota. MRES provides its members with wholesale electricity along with a host of energy-related services.
WMMPA is an organization made up of most of the Minnesota members of MRES. The two organizations have a power supply agreement that entitles MRES to all of the output of WMMPA-owned facilities as well as an administrative services agreement under which MRES provides administrative services on behalf of WMMPA.
“Market conditions for this sale are very favorable right now, and the ability to get to market so quickly is a tribute to the MRES staff and consultants,” Sawyer said. “Also, WMMPA bonds are viewed favorably by the financial community due to the fact that WMMPA bonds carry ratings in the ‘double A’ category from both Moody’s Investors Service and Fitch Ratings.”
Sawyer pointed to the financial strength of MRES members as a significant feature as to why WMMPA bonds carry some of the highest ratings among the nation’s public power joint-action agencies.
He also noted that rating agencies consistently point positively to the low-cost power supply, sound financial policies, debt service coverage, and diversified generation mix of MRES.