The Municipal Electric Authority of Georgia (MEAG) is selling more than $2.5 billion in debt to finance its share of two AP 1000 nuclear reactors proposed to be built in Waynesboro, Georgia. MEAG's partners include investor-owned, tax-paying public utility Georgia Power (Southern Company subsidiary) and cooperatively owned Olgethorpe Power Corporation. The deal includes mostly taxable Build America Bonds along with a small tax-exempt portion.About $2.11 billion of the bonds are rated within the middle of investment-grade credit ratings by Moody's Investors Service, Standard & Poor's and Fitch Ratings. Moody's, however, rates a $419 million segment at Baa2—within the lowest tier of the investment-grade. That is because the counterparty on the contracts that support debt service on the deal—PowerSouth Energy Cooperative—is also rated in the lower ranges of investment-grade debt.
One thing market participants like about the MEAG deal: the Obama administration $8.3 billion in conditional loan guarantees to the owners of the nuclear-reactor project. MEAG's $1.8 billion share of the guarantees should help alleviate any construction costs running over estimates.
The total cost of the reactors, which are expected to begin operation in 2016 and 2017, has been estimated at $14 billion. MEAG's share is around $3.7 billion. MEAG also has so-called "take or pay" 50-year contracts with 49 municipalities in Georgia, which secures future cash flow since the customers must still pay even if power is unused or the new projects aren't operational.
About $1.2 billion in Build America Bonds, due April 1, 2057, were launched at 205 basis points, or 2.05 percentage points over the yield of comparable Treasurys. Orders totaled over $3 billion. (WSJ, 3/4/10)
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