Great River Energy enters capital markets with $1.3 billion transaction
Elk River, Minn. -- Great River Energy finalized its first entry into the capital markets on July 2 with the completion of a landmark $1.3 billion transaction to refinance existing debt obligations financed or backed by the federal government. Great River Energy’s Series 2007A bonds were priced and the transaction was fully subscribed on June 21, within 36 hours of the initial offering. This is the largest transaction ever completed by a generation and transmission (G&T) cooperative.
Proceeds from the transaction enabled Great River Energy to repay approximately $1.1 billion of existing debt from the Rural Utilities Service (RUS) and RUS-guaranteed loans provided by the Federal Financing Bank (FFB). The remaining $200 million will be used to fund future capital expenditures. JPMorgan and Goldman, Sachs & Co. acted as lead structuring coordinators and joint book runners. Banc of America Securities LLC and KeyBanc Capital Markets also acted as joint book runners.
According to Great River Energy CFO Larry Schmid, “Great River Energy is very pleased with the transaction. We were able to take advantage of low treasury rates and tight credit spreads. We also opted to wrap the transaction with bond insurance provided by MBIA which enabled us to further reduce the credit spreads.”
In February, Great River Energy’s board of directors voted to leave the RUS/FFB program and replace all long-term debt with capital market financing. The vote culminated an extensive study and due diligence process that involved the board, a board financial transition committee, staff and a number of consultants and advisors.
“Leaving the RUS program will give more certainty that our future capital needs will be met in a timely manner,” Schmid said. “Great River Energy will need significant capital for additional electric generation and transmission facilities to meet the growing energy requirements of our distribution cooperative members. We expect that this $1.3 billion will be the first of a number of capital market transactions we will enter into over the next several years. Our additional capital needs for the next five years are expected to exceed $1.8 billion.”
Great River Energy has consistently improved its financial position in recent years in preparation for entry into the capital markets. Although this is Great River Energy’s first capital market transaction, it is not the organization’s first exposure to the banking community. Great River Energy greatly improved its liquidity position in 2006 through the issuance of a $600 million syndicated, five-year revolving credit facility involving 11 banks.
“Our financial strategy is to continue to strengthen our balance sheet,” Schmid said. “Leaving the RUS program and entering the capital markets gives us much needed flexibility to manage our capital needs and improve our financial position.”
Great River Energy’s strong financial position and strategy have led to the assignment of investment grade bond ratings from the three top nationally recognized credit rating organizations: Moody’s, Standard & Poors and Fitch Ratings.
“Our entry into the capital markets is a major accomplishment and milestone for our organization,” said Great River Energy CEO David Saggau. “I’d like to extend special thanks to those involved in the effort and to the investment community for their support of Great River Energy.”
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