CPS Energy sold $300 million in Series 2010A Junior Lien Build America Bonds (BABs) on Oct. 28 to help fund the completion of Unit 2 of the energy utility’s J.K. Spruce coal plant, as well as for environmental upgrades to its J.T. Deely coal plant and improvements to its electric and gas systems infrastructure. The 2010A Bonds’ all in, true-interest-cost (TIC) was set at 3.82 percent. 

CPS Energy also sold $200 million in Series 2010B callable Junior Lien BABs to refund tax-exempt commercial paper.  The all in, TIC for the 2010B Bonds was set at 4.15 percent.  The available capacity in its commercial paper program also will be used by CPS Energy to support improvements to its electric and gas systems. 

The bond sales were critical to locking in historically low interest costs. The closing documents for the transactions will be finalized on Nov. 4. 

“We were pleased with the level of interest in our bonds from a broad spectrum of investors.  These transactions were reflective of our good credit, and the support we receive from the San Antonio City Council, our regulating authority,” said CPS Energy Chief Financial Officer (CFO) Paula Gold-Williams. “This is very beneficial to our customers, as well as to our entire community.”  Including the federal credit subsidy that is applicable to the 2010A and 2010B Bonds, customers of the metropolitan San Antonio utility will save approximately $50 million in debt service over the life of these bonds, when compared to the traditional junior lien tax exempt rates. 

CPS Energy received questions in late October about whether a pending audit by the Internal Revenue Service (IRS) of BABs issued in 2009 might impact the current transactions.  Gold-Williams noted that investors understand that the inquiry into prior BABs is part of a previously announced national plan that the IRS has been working toward for a while and that the Department of the Treasury expressed no belief that the prior transaction failed to comply with any applicable federal tax requirements. 

CPS Energy’s CFO indicated that the utility will work cooperatively and diligently to address the requests of the routine IRS audit.

Both the 2010A and 2010B Bonds were issued as junior lien, long-term obligations and as of Oct. 22, the three international  rating agencies reaffirmed those credit ratings, which are AA+, Aa2 and AA- by Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s, respectively.

CPS Energy is the nation’s largest municipally owned natural gas and electric utility, providing service to approximately 707,000 electric customers and 322,000 natural gas customers in and around the City of San Antonio. The utility ranks among the nation’s lowest-cost energy providers while ranking number 1 in wind-energy capacity among municipally owned utilities.