LOS ANGELES DEPARTMENT OF WATER AND POWER SUCCESSFULLY ISSUES $550 MILLION IN POWER SYSTEM BONDS
A Testament to the Utility’s Fiscal Strength – Bond Sale Goes Exceptionally Well in Tough Credit Market
LOS ANGELES- The Los Angeles Department of Water and Power (LADWP) successfully issued $550 million of the Department’s Power System Revenue Bonds, 2008 Series A, at very favorable interest rates last week despite a very challenging credit market. The proceeds from the bond sale will be used by the Power System to finance infrastructure upgrades including new power poles, circuits, transformers and transmission lines throughout Los Angeles as part of the Department’s Power Reliability Program.
The success of the bond sale is primarily attributed to the LADWP’s good credit ratings (AA-/Aa3/AA-) and aggressive marketing by the Department’s underwriting team, which included LADWP Finance staff and underwriters Siebert Brandford Shank & Co.and Goldman Sachs & Co.
“In the midst of the toughest market conditions of our lifetime, LADWP’s bonds performed exceptionally well,” said LADWP CEO David Nahai. “This success is a testament to the fiscal strength of the Department and the excellent work of our finance staff and underwriting team. Such low interest rates allow us to invest more of our ratepayers’ money in upgrading and replacing aging infrastructure rather than paying higher interest to bond holders.
Despite concerns of lack of investor confidence and market liquidity, the bond sale was met with great enthusiasm by investors. Over 73% of the total orders came from retail customers, which include high net-worth individuals, trust, and investment advisor accounts. Retail customers are traditionally the buyers of tax-exempt municipal securities.
The Power System’s uninsured bonds were favorably priced relative to other tax-exempt debt issued last week. Bond pricing was better than other higher-rated issuances and even surpassed most similarly-rated issuances. Bond yields ranged from 2.77% on the 2011 maturity (3 years) and 5.43% on 2038 maturity (30 years.) The effective interest on these bonds is 5.28%. Just two weeks prior, the rate was above 6%. The timing of the sale combined with the Department’s strong credit saved the LADWP and its ratepayers significant interest costs.