The Power Authority of the State of New York is heading into the municipal bond market next week with a $750.975 million issuance of green bonds.
Goldman Sachs as senior manager is set to price the Series 2023A tax-exempt transmission project green revenue bonds on Tuesday after a one-day retail order period.
NYPA
Proceeds will fund reimbursement to NYPA for prior capital expenses and for the completion of its part of the “Smart Path Connect Project.”
The money will also help fund a capitalized interest fund and operating reserve account as well as pay the costs for a debt service reserve fund surety bond.
“This $750 million green bond sale will attract strong demand from both retail and institutional investors,” said NYPA President and CEO Justin E. Driscoll.
“The funding will directly support the Power Authority’s Smart Path Connect project, which is critical for New York to realize the full potential of renewable energy in Northern New York to help meet the state’s clean energy goals,” Driscoll told The Bond Buyer.
Driscoll is responsible for developing and implementing the utility’s strategy of fostering clean energy goals and is in charge of its operations as well as its legal and financial matters.
Smart Path Connect is a part of several transmission upgrades being undertaken across the state to support clean energy goals. Together, the projects will enable the flow of an additional 1,000 megawatts of clean, renewable energy.
Smart Path Connect aims to rebuild about 100 miles of transmission lines by replacing old wood H-frames with steel poles and replacing or upgrading approximately 10 power substations.
The bond issue has received a green bond designation from Sustainalytics and will be insured by Assured Guaranty Municipal.
J.P. Morgan, Siebert Williams Shank, Ramirez & Co., BofA Securities, Wells Fargo Securities, Piper Sandler, FHN Financial Capital Markets, Academy Securities and Loop Capital Markets are co-managers on the deal.
HilltopSecurities is the financial advisor while Hawkins Delafield & Wood and Pearlman & Miranda are the co-bond counsel.
Security for the bonds consists of a senior lien on all SFP Transmission (the power authority’s affiliate) revenues; a debt service reserve requirement that’s expected to be met by the AGM surety; and an operating reserve pegged at 50% of annual budgeted SFP operating expenses.
The deal is tentatively structured as $380.225 million of serial bonds due 2026 to 2043 and term bonds of $94.985 million in 2048, $93.11 million in 2053, $91.32 million in 2058 and $91.335 million in 2063.
The deal is rated A1 by Moody’s Investors Service, AA by S&P Global Ratings and AA-minus by Fitch Ratings and Kroll Bond Rating Agency.
“Transmission is often a pressing need. Routing power around more efficiently with fewer losses helps to maintain the integrity of the system,” John Hallacy, founder of John Hallacy Consulting LLC, told The Bond Buyer.
“Over a far-flung system with alternative power it is even more critical that the transmission issues are addressed,” Hallacy said. “This financing helps to achieve all of those goals and contributes to the reliability of the system.”
In August, Moody’s revised its outlook on the NYPA to positive from stable and affirmed the authority’s ratings. Moody’s also upgraded SFP Transmission’s revenue bonds to A1 from A2 and changed the outlook on the power authority’s affiliate to positive from stable. About $2.4 billion of debt was affected.
“The improved rating outlooks are critical for the Power Authority to ensure that we can continue leveraging the capital markets to provide affordable, reliable, and green electricity in support of the state’s transition into a clean energy economy,” Driscoll said at the time.
On Sept. 29, KBRA assigned a long-term rating of AA-minus with a stable outlook to the NYPA’s Series 2023A bonds and affirmed the long-term rating of AA-minus and stable outlook on the authority’s outstanding bonds.
“The rating reflects the broad (essentially statewide) customer base upon which the New York Power Authority can recover 100% of the annual Separately Financed Project (SFP) Transmission Revenue Requirement pursuant to a Federal Energy Regulatory Commission (FERC)-approved formula rate,” KBRA said.
“The rating further reflects the strategic role the SFP Transmission Project is expected to play in helping New York State achieve the aggressive clean energy goals of its 2019 Climate Leadership and Community Protection Act (CLCPA),” KBRA said.
In July, S&P affirmed the AA rating on the authority’s $1.6 billion of senior revenue bonds, with a stable outlook. Last year, Fitch affirmed the NYPA’s AA issuer default rating and kept the outlook at stable.
The NYPA was created in 1931 and provides wholesale power and transmission services. It owns and operates five major electric generating facilities, 11 small gas-fired generating facilities, four small hydroelectric facilities and more than 1,400 miles of transmission lines.
SFP Transmission was formed by NYPA to finance, operate and maintain transmission projects eligible to collect transmission revenue through the New York Independent System Operator.
Moody’s noted the agency is an instrument of state policy and plays a large part in its economic development goals.
In 2019, NYPA became the first North American electric utility to receive certification from the International Organization for Standardization, given to organizations meeting the most rigorous asset management standards.
Since 2015, the NYPA has issued almost $2 billion of debt, $1.6 billion of which was sold in 2020.
Moody’s said the NYPA’s fiscal 2022 was strong due to higher market energy prices and transmission revenues. Operating revenues and operating income exclusive of depreciation and amortization totaled $4 billion and $638 million in 2022 compared to $2.7 billion and $420 million in 2021.
The Series 2023A bonds are the second series of green transmission project revenue bonds issued under the Power Authority Act and transmission bond resolution approved by the NYPA in December 2021.
The transmission resolution is separate from the authority’s general resolution, and authorizes transmission project revenue bonds to finance transmission or distribution projects owned or leased by the NYPA.
The transmission resolution also includes a covenant prohibiting cross-default between the two resolutions, which supports the separation of the liens and pledged revenue sources.
In 2020, the NYPA sold a $1.23 billion deal which included a tranche of its first-ever green bonds. That deal won The Bond Buyer’s 2020 Deal of the Year award for the Northeast Region.
In 2022, the authority brought its first 100% green bond deal to market when it sold $600 million of transmission project green-certified revenue bonds.
That deal financed the rebuilding and modernizing the state’s electric grid. It was also the first ever deal done for the NYPA with bonds backed solely by revenue earned by specific transmission projects, instead of the authority’s underlying credit.