DENVER -- A $35.6 million bond issue that will fund a Utah power collective's purchase of electricity was tripped up yesterday by a potential wastewater problem.
On Monday, the Utah Associated Municipal Power Systems sold the revenue bond issue, which was rated triple-A with bond insurance from Municipal Bond Investors Assurance Corp. The underlying credit is rated A-minus by Standard & Poor's Corp. Moody's Investors Service and Fitch Investors Service did not rate the underlying issue.
According to market sources, the deal was structured with maturities ranging from 1995 through 2022, and yields ranging from 3.80% in 1995 to 6.50% in 2022. Goldman, Sachs & Co. was senior manager for the offering.
The deal was to be settled yesterday, but at the last minute the issuer received a call from Public Service Co. of New Mexico about a problem with some wastewater holding tanks at the coal-fired San Juan Project in northwestern New Mexico. Public Service is part owner and operates the San Juan Project.
The scare about wastewater leaks at the plant caused Utah Associated Municipal Power Systems, the issuer, to hold off on the settlement.
Utah Associated finance director David Tuttle said his agency was investigating the situation yesterday and there was too little information to comment on it. A spokeswoman for Public Service said she would inquire about the situation but did not respond before press time.
The deal, however, is now slated to be settled Friday, bond counsel Jim Burr said. "It's just extremely frustrating. The bonds have been priced, and we were all set to go," Burr said.
Details are sketchy, but apparently some employees were inspecting the plant and became concerned that there was a wastewater leak out of some underground holding tanks. Whether there was a leak or not has not been confirmed.
The employees became confused about the location of the tanks because they were referring to the wrong set of blueprints, said Walker Mygatt, a vice president with Goldman Sachs.
"The settlement was supposed to be today. We just have to work out this small problem with Public Service of New Mexico," Mygatt said. The settlement "is still set for Friday. This is all contingent upon what we find out here. We still have some work to do," Mygatt said.
Seth Lehman, the Standard & Poor's analyst who rated the issue, said the incident does not affect his rating. He said that the tanks in question were part of a different power unit than Utah Associated is buying.
"UAMPS is just protecting themselves and saying, we want to get independent verification of it," Lehman said.
Utah Associated is a power-buying consortium that has 34 member cities, most of them in rural Utah. The agency has agreed to purchase for $40 million a 7% share, or 35-megawatt ownership, of San Juan Unit 4. Sixteen of the cities have agreed to sign "take-or-pay" contracts with Utah Associated to buy the power from the San Juan unit.
The contracts, which force the cities to pay for the power whether they use it or not, secure the revenue bonds, according to Lehman's analysis. Member cities are also contributing equity cash as part of the purchase.
The two principal cities that will use the power are St. George, a southern Utah resort area with a population of 28,500, and Logan, Utah, located in northeastern Utah with a population of 35,000. Logan is home to Utah State University. Both cities are growing rapidly, Lehman said.
