A cooperative district in Alabama sold more than $500 million in bonds to secure a long-term supply of energy for an electricity utility operating in the southern half of the state.
The bonds will finance the purchase by the cooperative district, Energy Southeast, of thirty years-worth of energy from a supplier, Morgan Stanley Energy Structuring, LLC (MSES). Energy Southeast will in turn sell the energy to the Alabama Municipal Electric Authority (AMEA), which will use it to supply the state’s homes and businesses with electricity.
The bonds were sold in two series. The 2023 Series A-1 bonds, consisting of $481 million, were sold at a fixed rate; they mature between 2031 and 2053 and yield between 4.41% and 4.5%. The 2023 Series A-2 bonds, consisting of an additional $20 million, will pay interest at the SOFR index rate. Both series will be subject to a mandatory tender on January 1, 2031. The securities received a rating of A1 from Moody’s Investors Service and A+ from Fitch Ratings.
“The project is structured to ensure that monthly net payments to Energy Southeast are sufficient to pay scheduled debt service, regardless of changes in energy prices, the physical delivery of energy or the acceptance of delivered energy,” according to Fitch.
The deal includes provisions that require MSES to pay Energy Southeast for any missed energy deliveries.
AMEA operates primarily in southern Alabama, where it provides electricity to more than 120,000 customers.
The bonds are backed by revenue from electricity sales and a series of swap agreements, including an interest rate swap with MSES.
Morgan Stanley & Co LLC served as lead underwriter on the issuance, purchasing the bonds for $529 million. The price reflected a premium of $30 million and a discount of $3 million.