The Santee Cooper Board of Directors on Wednesday approved a $1.3 billion tender and exchange bond refunding, which is expected to produce gross savings of $378 million over the life of the bonds.
The South Carolina Public Service Authority on Jan. 18 had offered to purchase or exchange $2.7 billion in outstanding bonds sold in 2013, 2014 and 2015. The offer received a participation rate of 48%, the authority said.
The board and underwriters noted this was a complex transaction, which took over six months to complete, and the first time Santee Cooper had undertaken a deal of this type.
The board approved Tuesday’s sale of $930.99 million of Series 2022A tax-exempt refunding bonds to tender $943 million of outstanding high-coupon bonds and also ok’d around $352 million of Series 2022B tax-exempt refunding bonds to exchange for outstanding high-coupon bonds.
The transaction was led by BofA Securities with J.P. Morgan Securities serving as senior manager. Co-managers include American Veterans Group, Barclays, Citigroup, Goldman Sachs, Morgan Stanley, TD Securities and Wells Fargo.
Nixon Peabody was the disclosure counsel, Burr & Forman was the bond counsel and PFM was the financial advisor.
The bonds were rated A2 by Moody’s Investors Service, A by S&P Global Ratings and A-minus by Fitch Ratings All three agencies have stable outlooks on the credit.
The Series 2022A bonds were priced to yield from 1.01% with a 5% coupon in 2023 to 2.41% with a 5% coupon in 2044. A 2047 term bond was priced as 4s to yield 2.73%, a 2052 term was priced as 4s to yield 2.82% and a split 2055 term was priced as 4s to yield 2.90% and as 5s to yield 2.71%.
Santee Cooper said its final acceptance of the tender and exchange offers are contingent on closing on the Series 2020A and B bonds, scheduled for Feb. 23.
The transaction had an all-in total interest cost of 3.31%.
Gross savings from the deal is expected to be $378 million, or about $11 million a year, which would result in around $250 million in net present value (NPV) debt service savings, according to the authority. The NPV figure represents 19.4% of the refunded par amount.
The transaction does not increase the par amount or extend the life of the debt and Santee Cooper said it is compliant with the parameters approved by the South Carolina Joint Bond Review Committee.
“This is a strong day for Santee Cooper,” Board Vice Chairman Dan Ray said at the board meeting. “We’re saving our customers a lot of money, and this will make the organization stronger financially and give us a lot more flexibility as we move forward.”
Kevin Langlais, managing director at BofA Securities, said at the meeting the deal was very successful, noting the strong savings that was generated.
“Historically, refinancings have produced between 5% and 10% present value savings … this transaction today is generating 19.4% savings. On a present value basis, that’s nearly $250 million in savings, but on a cash flow basis that’s $378 million,” he said. “That’s $378 million that will not be coming out of the wallets of your customers” Langlais said.
He added while some investors in the past had expressed uncertainty around the credit, with these matters settled, investors view the authority favorably and see it as being on a strong footing.
“This is a tremendous result,” said Kevin Plunkett executive director at J.P. Morgan, adding, the board’s efforts over the years relating to investor relations “came to fruition in terms of this transaction and the healthy response that it got from your investor community.”
Ken Lott, Santee Cooper’s chief financial and administrative officer, noted the transaction was complex and credited the many internal and external advisors involved in the deal.
Santee Cooper is South Carolina’s largest power provider and the ultimate source of electricity for 2 million people across the state.