Case Study

Municipal Electric Authority of Georgia (MEAGPower)

PFM was hired in 1997 by the Municipal Electric Authority of Georgia (MEAGPower) to serve as financial advisor. In that capacity, PFM has been involved in transactions totaling over $1.5 billion. The goal of these transactions was to better position MEAGPower for a deregulated marketplace by addressing the issue of stranded costs.

As a prelude to implementing our strategy to mitigate these above market costs, it was necessary to make a series of amendments to MEAGPower's outstanding senior lien bond resolutions. To accomplish this task, PFM helped design and execute a bondholder consent process. Without any form of compensation, over 2/3 of the holders of MEAGPower debt agreed to seven amendments to the bond resolution because they fundamentally recognized the validity of our contention that the proposed changes strengthen MEAGPower's competitive position and consequently the underlying credit. MEAGPower was able to effectively change its bond covenants without the refunding of any debt.

The flexibility gained from the bond amendments allowed MEAGPower to fund the Municipal Competitive Trust with a significant amount needed to offset the stranded costs. If and when deregulation arrives in Georgia, MEAGPower now has the resources in the Municipal Competitive Trust to offer market priced energy to its members. Without the changes to the bond resolution afforded by the amendments, MEAGPower would not have the financial resources necessary to be competitive.

Recently, MEAGPower closed an "In-Kind" Exchange transaction, which effectively leased the Scherer and Wansley generating units. The tax sale of the plants will produce over $100 million of net present value benefit to MEAGPower with no change of operating control. However as a condition of the "In-Kind" Exchange Lease, MEAGPower was required to take certain remedial actions. The IRS provided MEAGPower with several remediation options to replace the existing tax-exempt debt associated with the Scherer and Wansley plants with taxable debt. PFM devised a remediation strategy to minimize the dissavings associated with the tax-exempt to taxable conversion while complying with IRS constraints.

The strategy consisted of defeasing outstanding tax-exempt debt, purchasing bonds through an open market tender, remarketing existing tax-exempt variable rate as taxable variable rate, and funding new capital additions with taxable debt. The most important component of the remediation strategy was the Open-Market Tender. The Open-Market Tender proved to be effective in both capturing a high interest rate environment by purchasing bonds at a market discount and providing a low-cost remediation option. The tender program, which consisted of a fixed price tender to attract the retail community and a modified dutch auction to attract the institutional bondholders, was very effective and produced over $17 MM in present value savings. In addition to the savings, the tender program also provided MEAGPower with the opportunity to increase the overall call optionality in the debt portfolio by funding the tender with issuance of tax-exempt variable-rate debt.