ATLANTA -- The financial adviser to the Sebring, Fla., Utilities Commission has recommended that the troubled authority sell its remaining assets to Florida Power Corp., redeem its $91 million of AMBAC Indemnity Corp.-insured outstanding debt, and dissolve itself.
In a meeting last Thursday evening of the commission's board of directors, James L. Lentz, the adviser, ranked the Florida Power proposal ahead of three competing plans, all submitted by Tampa Electric Co. In each of the Tampa Electric proposals, the commission would remain in existence and the bonds would be refinanced, rather than called outright.
Mr. Lentz said that the Florida Power proposal is "slightly" better than the competing offers because, over all, it would entail the lowest increase in electric rates to Sebring customers and the lowest present value cost to the utility. Florida Power's bid is also attractive, he said, because it would allow the embattled utility to sell its remaining assets and go out of existence after arranging to have all outstanding debt called.
"It really comes down to the rates [charged to customers] and the straightforwardness of the proposal," said Mr. Lentz, who is also an executive vice president with Fray Municipal Securities Inc. in Orlando. The financial adviser said he expects the commission's board of directors to act on his recommendation by Oct. 16 and begin negotiations with Florida Power.
Mr. Lentz said, however, that the two competing bidders would be given two weeks to provide any final details to the commission "to make sure we haven't made any misassumptions." He said he expects the commission to hold a workshop on the proposals on Oct. 9 or 10 and to approve a final plan on Oct. 16.
Florida Power has offered an outright takeover of the utility's remaining assets -- its distribution system and rights to its customer base -- in exchange for a cash payment of $10.2 million and a loan of $42.3 million.
The utility would add $36.3 million to that $54.7 million total, allowing the insured bonds to be called immediately. The $36.3 million would come from $12.6 million in a reserve account, $2.4 million in other assets, and $23.5 million the utility is counting on from the sale of its water system to the city.
This option would close down the commission, and Sebring's utility customers would henceforth be served by Florida Power, which would add a $27 monthly "transitional fee" to customers' average bill. The fee would continue for 15 years in order to pay off the loan. Approval of both the city council and Florida's Public Service Commission would be required.
Under the second and third proposal, Tampa Electric Co. would take over management of the utility, which would retain its assets and refund the insured bonds, extending their maturity structure beyond the 2020 current final due date either by 15 years or 30 years.
A fourth proposal, again from Tampa Electric, also would allow the commission to continue in existence. It would pay the commission for its assets and provide it with a tax-exempt loan.
This, together with the commission's reserves and the $21.5 million proceeds from the sale of the waterworks, would permit Sebring Utilities to eventually call all of its bonds.
One detail that Mr. Lentz said needs to be clarified is how Florida Power intends to deal with a $2 million difference between the $23.5 million that the commission had expected from the sale of its water works to the city and the $21.5 million actually offered. He said the $2 million must either be covered by increasing the cash payment for assets or by increasing the loan amount. Mr. Lentz also prodded Florida Power during his presentation Thursday night to reduce the interest rate from the 9.5% its bid proposes to charge on the loan.
Mr. Lentz has urged the utility to move quickly in order to avoid a steep rise in debt service costs, which jump to $15.4 million a year by 1996 from about $10 million this year. The rise would force an increase in rates to about $135 per 1,000 kilowatt hours from their current level of about $110 per 1,000 kilowatt hours.
The Sebring Utilities Commission has been wrestling with a burdensome level of indebtedness ever since 1981, when its sold $92.8 million of bonds to build a 41.7 megawatt diesel/steam power plant -- and found that revenues would fall below debt service requirements because power demand in the region was far short of expectations. The utility restructured its borrowings in 1986, selling $115.2 million of debt in two series, $94.3 million of AMBAC-insured bonds and $21 million of uninsured bonds then valued about $21 million.
The commission's problems with its debts, however, have continued. Last March, it moved to begin reducing those costs by selling its power plants to Tampa Electric Co. and using the proceeds from those sales to redeem the uninsured bonds.