The Long Island Power Authority is lining up a $738 million sale of electric system general revenue bonds in three tranches on Tuesday.
The authority, which services Nassau and Suffolk counties in New York City’s Long Island suburbs and the Rockaway Peninsula the city’s Queens borough, will sell roughly $368 million of Series A fixed-rate, tax-exempt bonds maturing from 2022 to 2044, $194 million of Series C taxables maturing in 2023 and a Series B $175 million 2026 mandatory tender.
LIPA is the nation’s third-largest municipal electric transmission and distribution by U.S. customers.
Wells Fargo Corporate & Investment Banking is lead manager. Moody's Investors Service rates the bonds A2, while S&P Global Ratings and Fitch Ratings each assign an A rating.
“LIPA has been one of the better performing New York credits this year,” said John Ceffalio, senior municipal research analyst at research firm CreditSights.
The utility’s 10-year benchmark yield closed Wednesday just one basis point higher than at the end of 2020. At the end of last year, a 10-year LIPA was 22 basis points above the AAA scale; its valuation Wednesday was at minus three to the AAA.
LIPA reported $15.5 billion of assets and $3.9 billion of revenue for 2020, according to a recent investor presentation. Officials cite a diverse customer base. Its largest customer, the Metropolitan Transportation Authority’s Long Island Rail Road unit, accounts for less than 2% of total sales and revenues.
“Is today's LIPA a strong credit? We think it is, and credit quality is improving as leverage has slowly declined since the LIPA Reform Act,” Ceffalio said, citing 2013 legislation that authorized LIPA to sell securitization bonds for refunding through a new Utility Debt Securitization Authority.
Debt is still high at 8.4 times funds available for debt service, “but this should fall below 8 times in the coming years, which will provide upwards ratings momentum,” Ceffalio said.
A new state bill enacted on Aug. 2 enabled UDSA increase its amount of issuance to $8 billion from $4.5 billion. The legislation authorizes UDSA to issue restructuring bonds to refund existing LIPA and UDSA debt and terminate interest-rate swap contracts, and finance resiliency investments with a term of up to 30 years.
LIPA’s contract with PSEG Long Island — a subsidiary of publicly traded, New Jersey-based Public Service Enterprise Group to operate LIPA's electric infrastructure — is up for renewal.
LIPA is looking for great accountability from PSEG after Long Islanders experienced widespread outages during Tropical Storm Isaias last year. A proposed settlement, reached in June, would increase the amount of PSEG Long Island’s annual compensation at risk to 51% of the management fee.
Other provisions include stronger oversight provisions for LIPA and the state Department of Public Service.
New Gov. Kathy Hochul may weigh in on the agreement, which still needs the approval of several parties, including the LIPA trustees and the New York State comptroller and attorney general.
The state in 1984 created LIPA — which Ceffalio called a “story credit” — to acquire generation from the Long Island Lighting Co. LILCO at the time faced heavy debt from the Shoreham Nuclear Power Plant, which LIPA closed that decade.
By the late 1990s, LIPA also acquired LILCO's electric distribution and transmission system.
“This transition to public power lowered rates some, but servicing the Shoreham debt kept LIPA's bills high,” Ceffalio said. “Political pressure limited LIPA's ability to improve margins and build cash, which kept ratings low and spreads high.”
The 2013 bill followed complaints about LIPA’s service during Hurricane Sandy.
