Senior Vice President/CFO
Rate stability, flexibility among many benefits of refinancing Tri-State's debt
Without question Tri-State's most significant and historic event of 2014 was the completion of a series of transactions on Nov. 5, 2014, that resulted in the refinancing of a substantial portion of the association's debt.
This refinancing will benefit Tri-State and its members for years to come. The scope of the transactions totaled $1.59 billion, included a $750 million private debt placement, a $500 million public bond offering and $340 million in CoBank and National Rural Utilities Cooperative Finance Corporation (CFC) loans.
The average rate on new debt is approximately 3.9 percent. This transaction is among the largest completed by an electric cooperative in U.S. history.
In order to strengthen liquidity, Tri-State also increased its credit facility to $750 million, extended the maturity to 2019, and added several new banks to the credit facility.
Following are a series of frequently asked questions and answers that will hopefully provide a better understanding of this debt restructuring:
Q One of the primary goals of Tri-State's refinancing is to provide a better match of debt amortization to the life of the association's existing and future assets. Please elaborate on what that means and how it is being achieved.
A In recent years we have taken significant steps to extend the lives of our plants well into the 2050s time frame. Additionally, we have transmission assets with very long lives. Nearly all of the association's member contract terms expire in 2050, but the bulk of our financing did not match that time frame. As loans taken out in the 1980s and 90s have matured, Tri-State was faced with a "front-end loading" of increasing principal payments that were exerting upward pressure on the association's rates. The new refinancing spreads those higher principal payments into the future to better match financing to the life of our assets. This action relieves upward rate pressure and has another important benefit of reducing the amount of future borrowing required for capital needs.
Q How will Tri-State's members benefit from this debt refinancing action?
A In addition to the aforementioned financial flexibility, the refinancing will provide the association with millions of dollars of cash flow savings in the next few years that will help reduce upward rate pressure to the membership.
Q Are there other market factors that made last fall a particularly good time to refinance Tri-State's debt?
A Yes, Tri-State's board and staff took advantage of a window of opportunity when we had access to historically low interest rates and low credit spreads (favorable bond market rates), in time to affect 2015 wholesale rates to our members.
Q Another component of the refinancing was to pay off Tri-State's loans with the Rural Utilities Service (RUS) and seek private market financing. Why?
A Although RUS has been a key capital funding resource to Tri-State and many other G&T cooperatives for many years, the current process for applications, funding and management of RUS loans has become increasingly time-consuming and burdensome. RUS now imposes a wide array of regulatory and administrative constraints on borrowers and their loan funds are increasingly tied to onerous and unnecessary environmental regulations that are time- and cost-intensive. As a growing G&T, the association must be able to fund capital expenditures in a timely fashion to meet member requirements. The capital markets, in addition to CoBank and CFC, offer greater flexibility in meeting the association's debt capital needs.
Q Have other G&Ts refinanced their debt in similar ways?
A Yes, several other G&Ts have refinanced all or part of their debt, including their RUS debt. Chugach Electric, Old Dominion and Great River Energy have exited the RUS program and several other G&Ts have refinanced or financed a portion of their debt including Wabash Valley, Oglethorpe Power and Georgia Transmission. All G&Ts who have exited the RUS program have been able to successfully access debt capital in the market.
Updated: April 2, 2015