Georgia Seeks $2.5 Billion for First Nuclear Plants in 30 Years

March 01, 2010, 12:22 AM EST

By Michael McDonald

March 1 (Bloomberg) -- Georgia’s Municipal Electric Authority plans to borrow more than $2.5 billion this week to help finance its share of two nuclear reactors, which would be the first licensed in the U.S. since the Three Mile Island reactor accident in 1979.

The authority will borrow almost all of the money through the U.S. Treasury’s Build America Bond program, which subsidizes 35 percent of the interest cost on taxable securities sold for public purposes. Goldman Sachs Group Inc., which received a letter last week from U.S. Senator Charles Grassley questioning fees earned from selling Build America Bonds, is the sole underwriter, according to offering documents.

The subsidies provided under the program are in addition to $8.33 billion of conditional loan guarantees that the federal government offers the owners of the proposed project, which includes Atlanta-based Southern Co., the second-largest U.S. utility owner. President Barack Obama announced the pledges on Feb. 16 along with a commitment to triple loan guarantees available to finance “safe, clean nuclear facilities.”

“Even though we’ve not broken ground on a new nuclear power plant in 30 years, nuclear energy remains our largest source of fuel that produces no carbon emissions,” the president said at a press conference. “To meet our energy needs and prevent the worst consequences of climate change, we’ll need to increase our supply of nuclear power.”

Vogtle Station

The state’s municipal electric authority has a 22.7 percent stake in the project, located in the south of Georgia at the site of two existing nuclear reactors known as the Vogtle station, according to a report from Moody’s Investors Service. The authority’s share of the cost is $3.7 billion, Moody’s said. The reactors would start producing power in 2016 and 2017, according to bond offering documents.

The authority plans to offer investors $2.5 billion of taxable municipal securities maturing in 2057, as well as $55 million of tax-exempt debt maturing in 2040, according to data compiled by Bloomberg. Moody’s rated $2.1 billion of the securities A2 and $419 million two levels lower at Baa1 based on different agreements the utility has to sell the nuclear- generated power, according to the report from the New York-based company.

Standard & Poor’s and Fitch Ratings graded $2.1 billion of the deal A+ and the rest A-. Jim Fuller, the authority’s chief financial officer, didn’t return calls seeking comment.

The sale may be a test for the bond market because the final maturity of 2057 is longer than most offerings and nuclear power-backed debt is rare, according to Matthew Buscone, a portfolio manager at Boston’s Breckinridge Capital Advisors Inc., a money manager overseeing $12 billion in assets.

‘Unique Challenges’

“This is going to have some unique challenges” because it has been so long since a nuclear power plant was licensed, Buscone said. “Who’s got the appetite for an extraordinarily long, A rated electric revenue bond with nuclear power attached to it?”

Michael Duvally, a Goldman Sachs spokesman, also declined to comment on the bond sale.

Goldman Sachs Chairman Lloyd Blankfein was asked last week in a letter from Grassley, the top Republican in the Senate Finance Committee, to detail the fees it earns selling Build America Bonds and compare them to how much the bank makes underwriting other types of debt. Grassley said he was concerned because the American taxpayers are subsidizing the cost of the bonds.

Build America Bonds were introduced as part of the American Recovery and Reinvestment Act the president signed more than a year ago. The program pays 35 percent of the interest cost if states and local governments sell taxable bonds instead of tax- exempt.

Duvally said in a statement last week that the “publicly disclosed fees” the New York-based investment bank earns selling Build America Bonds “are set on the basis” of dozens of banks competing for the business.

Following are descriptions of pending sales of municipal debt in the U.S.

NEW YORK STATE DORMITORY AUTHORITY, the second-biggest municipal issuer after California last year, plans to sell $634 million of debt secured by personal income tax revenue in the first week of March. The deal, which Royal Bank of Canada’s RBC Capital Markets will handle, comprises $374 million of tax- exempt securities, $213.8 million of Build America Bonds and $46.7 million of nonsubsidized taxable notes. The proceeds will refinance debt and fund projects for health facilities, environmental infrastructure and remediation of hazardous waste sites. Standard & Poor’s rates the securities AAA. Fitch Ratings assigns its AA-, three levels lower. (Added Feb. 26)

CALIFORNIA, the lowest-rated U.S. state, intends to raise as much as $5 billion from investors during March with its first bond sales since November, according to Treasurer Bill Lockyer. JPMorgan Chase & Co. and Morgan Stanley were selected to manage a tax-exempt deal, and Citigroup Inc. and Bank of America Merrill Lynch will handle a taxable offering, according to the state treasurer’s Web site. California is rated A- by S&P, Baa1 by Moody’s Investors Service and BBB by Fitch. (Added Feb. 26)

DETROIT, the largest U.S. city whose general obligation debt is rated below investment grade, plans to borrow $250 million as soon as March 9 by issuing municipal securities to help fill a budget deficit, Moody’s said in a report. State aid derived from a Michigan-wide sales tax as well as the city’s full faith and credit secure the bonds, rated A1 by Moody’s and AA- by S&P. Without aid from Michigan, the ratings would be B1 from Moody’s and BB by S&P. (Added Feb. 26)

--With assistance from Jeremy R. Cooke in New York. Editors: Walid el-Gabry, Stephen West.

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Source: http://www.businessweek.com/news/2010-03-01/georgia-seeks-2-5-billion-for-first-nuclear-plants-in-30-years.html