ATLANTA -- The North Carolina Eastern Municipal Power Agency plans to offer a $1.45 billion bond issue today that has market participants biting their fingernails.
The offering, the largest long-term issue among a series of mammoth deals slated for sale this week, could be priced as early as today by a syndicate led by Smith Barney, Harris Upham & Co.
If it comes to market at its anticipated size, the deal would be the fourth-largest municipal bond issue ever, according to Securities Data Co. It would also be the biggest since the New Jersey Turnpike Authority sold $1.62 of municipal bonds in November 1991.
The deal includes both new-money and refunding bonds. The new money portion consists of $115 million of power system revenue series 1992A bonds. Proceeds will be used to finance construction of the peaking project new, generating facilities that will provide additional power during peak usage.
The refunding leg is structure as $1.34 billion of power system revenue refunding series 1992 B bonds and set to advance refund about $1.13 billion of outstanding high-coupon debt. The agency currently has about $3.2 billion of outstanding parity revenue bonds.
Market participants are concerned about the large size of the sale in the face of uncertain market tone and a record forward supply.
Dealers are also worried about the substantial amount of deep discount bonds included in the agency's offering. Such bonds expose investors to a greater risk of price deterioration in a rising interest rate climate than current coupon bonds.
"Given all the other financings in the works, selling this one could be like fitting a gorilla through a keyhole," said a portfolio manager at a large mutual fund, who declined to be identified. "All can say is that if things go bad the underwriters will find themselves holding a ton of zeros."
Al M. Conyers, the authority's treasury manager, said that despite the problematic state of the market, pricing will almost definitely be today.
"We do not want to put off coming to market with this deal, but we may end up paring down the size of the refunding portion," he said.
He said that at current interest rates the refunding is expected to generate a present-value savings of about $50 million. The agency last refunded debt was in October 1991, when it sold $429 million of debt for this purpose.
"That will take out a very large chunk [of high-coupon debt], though there could be some left of refund later," Mr. Conyers said. He also said the agency may have to issue more bonds to finance the power plants.
Officials at Smith Barney were not available for comment on the timing or structure of today's sale.
The North Carolina Eastern deal could complete for buyers this week with at least three other large deals: $700 million of Washington Public Power System refunding bonds, $530 million of Ohio Water Authority refunding bonds, and $494 million of New York State Medical Care Facilities Authority refunding bonds.
It also comes at a time of record 30-day visible supply, which was calculated at $10.5 billion yesterday. The highest previous level was $8.89 billion on Nov. 13, 1985.
As currently envisioned, the refunding portion would include $179.5 million of capital appreciation bonds ranging in maturity from 2003 to 2023. Of this debt, $107.5 million is concentrated in the 2021 through 2023 maturities.
The underwriters expect the refunding series to be rounded out with $924.7 million of current interest term bonds and $230.8 million of current interest serial bonds coming due between 2001 and 2007. The current interest term bonds comprise $241 million due January 2010, $362.2 million due 2015, and $321.5 million due in 2023.
Current plans call for structuring the new-money portion with $30.7 million of serial debt maturing between 1997 and 2007, and $84.3 million of term bonds coming due in 2010, 2015, and 2021.
Both series of bonds will be secured by the agency's net revenues on a parity with its outstanding power system revenue bonds. About $2.08 billion of revenue bonds will remain outstanding after the refunding.
Each of the system's 32 participants is obligated to cover its portion of monthly project power costs on a take or pay basis. If any participant defaults, other participants' shares may increase by 25% of the original amount.
Last Friday, Moddy's Investors Service and Fitch Investors Service each awarded the upcoming issue an A rating and affirmed an A on the power agency's outstanding debt.
However, Alan Spen, the Fitch managing director of revenue bond ratings, has revised North Carolina Eastern's credit trend to declining from stable. Mr. Spen cited recent operating problems at the Brunswick nuclear plant and concerns that the agency may be forced to impose sizable rate increases over the next several years. The power agency has partial ownership of three nuclear power plants -- Brunswick Unit No. 1, Brunswick Unit No. 2, and Harris Unit No. 1.
Standard & Poor's Corp. yesterday awarded an A-minus to the deal and reaffirmed its A-minus rating on the agency's outstanding bonds.
But Mr. Spen also noted that "the agency demonstrates a balanced approach to power supply planning, which should benefit from the generally favorable performance of its other power plants and the construction of the new peaking project."
Mr. Conyers said that new plants to be built with the series A proceeds will reduce the agency's reliance on Carolina Power & Light for electricity during times of peak usage.
Current plans call for building combustion units that operate on either natural gas or fuel oil, with a total capacity of between 160 megawatts and 200 megawatts, the agency official said.
He said the agency expects the plants to be operational by June 1995 at an estimated construction cost of about $94.2 million. The units will be located at two separate sites in North Carolina, one near Battleboro and the other in Rocky Mount.
The new facility will add to the power agency's current capacity of 639.7 megawatts, which is derived from its participation in two coal-fired and three nuclear-fueled generating units operated by Carolina Power & Light.
