Tucson Electric Power Co. yesterday closed a $117.5 million bond deal, converting its variable-rate debt to fixed and ending the saga of failed dutch auctions that have plagued the utility for more than a year.
The bonds were priced to yield 7.25%, lower than the average rate resulting from almost three years of monthly dutch auctions, according to Tucson's financial adviser, Joseph S. Fichera, a managing director at Bear, Stearns & Co.
Tucson's variable-rate bonds, underwritten by Goldman, Sachs & Co. in 1988, were the first ever to fail at a dutch auction in the municipal market.
Starting in June 1990, potential investors began shying away from the monthly auctions because of liquidity concerns. Tucson's credit had taken a nosedive, and short-term investors feared a failed auction would leave them stuck with long-term debt.
That begin a 16-month string of failures, which cultimated in September when the penalty rate imposed on Tucson for the unsuccessful auctions reached 12.6% -- an unheard-of level for a tax-exempt, triple-A security backed by insurance from Financial Security Assurance.
The failures prompted Tucson to drop Goldman Sachs as marketing agent for the auctions, abandoning the firm that debuted its "periodic auction reset securities" with the Tucson deal in 1988. The utility then hired Bear Stearns to advise it on how to jettison the dutch auction process and convert the debt to a fixed rate.