LOS ANGELES--Credit ratings on the Southern California Public Power Authority's $482 million bond refunding were put on notice Friday after officials restructured and resized the deal before pricing.
Standard & Poor's Corp. said it withdrew a AA-minus rating on the refunding after it was restructured as a crossover refunding secured by SCPPA revenues and a guaranteed investment contract.
Moody's Investors Service on Friday put on review its Aa rating on the deal until authority officials could provide the agency with new documents. Both agencies assigned the original ratings in late June. The deal had been scheduled for sale June 24, but SCPPA delayed the issue due to market conditions.
"They changed the structure so significantly it wasn't the same deal anymore," said Christine Ruppert, associate director at Standard & Poor's. "It totally changed the legal provisions. Once the deal is gone, the rating is gone."
Margaret Chan, principal with O'Brien Partners, the financial adviser on the deal, said the financing was restructured and resized to take advantage of current low interest rates and to mitigate any negative arbitrage earnings. She said she was confident ratings would be confirmed.
"The rating agencies have conceptually reviewed the structure, and we will receive ratings subject to document approval," she said.
"Things are happening so fast, we don't have all the information," said Karen Krop, assistant vice president at Moody's. "This morning we reacted as fast as we could. We're not being punitive," by putting the rating on review.
The authority proceeded to price the deal Friday with yields ranging from 2.75% in 1993 to 6.15% for term bonds in 2021. Capital appreciation bonds were priced to yield from 6.10% in 2004 to 6.35% in 2015.
In a general crossover refunding, the issuer can hedge against future interest rate increases. Proceeds of a new bond issue are placed in an escrow account, while the issuer's revenues continue to pay debt service for a period of time on the securities targeted for refunding.
At a preset future date, the escrowed proceeds are released to refund the outstanding bond issue, and the issuer's revenues do a "crossover" and begin paying off the new bond issue.
Ms. Krop said the authority has promised to send the rating agency the GIC draft and other documents related to the financing on Monday.
"Hopefully the GIC will meet all of Moody's criteria," she said. "It seems pretty complicated. The crossover itself is not, they've done that before. But we want to make sure there are no loopholes in the GIC."
SCPPA was formed as a joint powers agency in 1980 and comprises 11 members.
