By Neil Hartnell
Tribune Business Editor
Bahamas Power & Light’s (BPL) nine-figure refinance is eyeing an end-November 2019 closing, Tribune Business can reveal, with the targeted sum “likely” to be less than the original $650m.
Geoff Andrews, chairman of the special purpose vehicle (SPV) that will issue the rate reduction bonds (RRB) to restructure BPL’s multiple legacy liabilities, confirmed that a portion of the needed capital “will definitely” be raised from Bahamian investors.
While unable to give many details, given that he and the SPV’s Board were appointed within the last few months, Mr Andrews said they planned to seek bids from financial institutions to act as the RRB issue’s adviser, placement agent and arranger before May’s end.
He added that the Board, which also includes ex-Royal Bank of Canada (RBC) executive, Larry Wilson, and Tanya Carey, planned to select a preferred bidder before the end of June.
Once that happened, Mr Andrews said they would then be able to tie down the RRB offering’s details, including its structure, pricing (interest rate paid to investors), and how much will be raised locally versus internationally.
“We are definitely working very hard to get the issue done by the end of November. We’re all doing our best to meet that target,” he told Tribune Business. “When you look at the history, this [the RRB issue] has been an ongoing discussion since 2013-2014. It is something we are very much stressing the importance of getting done as quickly as possible to all the other parties involved.”
Asked whether the RRB issue was aiming to raise the $650m initially targeted, Mr Andrews responded: “I would rather not give the details on that yet, but it more than likely will be less than that original amount and we will definitely be looking for a local component.
“We have not in our minds decided how much will be local versus international. That will be something discussed with the lead arranger. We are certainly looking to have a local component, and I am comfortable in saying the amount is less than originally planned for.”
BPL’s refinancing, while essential to its future financial health, may provoke controversy among some elements of Bahamian society given that it is ultimately the state-owned energy monopoly’s customer that will pay for it via an extra charge that will be added to their monthly bills.
The original RRB plan, developed by the former Christie administration under the Electricity Rate Reduction Bond Act, calls for the sums raised by this additional charge to be used to pay the interest owed to investors who purchase the bonds.
While the proposed charge is somewhat miniscule in relation to the overall size of household and business bills, the Government will likely be wary of a backlash from consumers already fully vexed by high energy costs that are eating into profits and disposable incomes - not to mention supply unreliability.
The November target-date for the RRB coincides with when BPL’s $95m generation investment in 132 Mega Watts (MW) of additional capacity is due to come online, and the Government is likely hoping that the reduced costs and improved reliability from the Wartsila engines will offset any RRB charge on consumer bills.
Meanwhile Mr Andrews, the former Deloitte & Touche (Bahamas) accountant and partner, who also chairs the Small Business Development Centre (SBDC) initiative, revealed that the SPV - formally called The Bahamas Rate Reduction Bond Ltd - is spearheading the RRB issue rather than BPL.
“We have met several times with the BPL Board and management,” he added. “I think the appointment of an actual Board for the RRB company was an important milestone because before there was something on paper. Now there’s an actual corporate body behind what’s being driven.”
Dr Donovan Moxey, BPL’s chairman, confirmed the meetings, adding: “That process is moving forward. The RRB company are the ones leading the charge and driving that. They have to lead. Under the RRB Act that falls squarely under their purview. The law does not allow us to lead that effort. We at BPL are in a supporting role.”
This is because it is The Bahamas Rate Reduction Bond Ltd, not BPL, that will be responsible for issuing the bonds and paying investors due interest - collected from BPL customers - to service this obligation.
This structure will exchange BPL’s legacy Bahamas Electricity Corporation (BEC) debt and other liabilities for new debt, which will be kept off BPL’s balance sheet via the SPV’s role as issuing agent.
The old liabilities include around $350m in bond and bank debt; a $100m employee pension fund deficit; and other assorted liabilities including the cost of environmental clean-ups at various sites around The Bahamas. It is likely that some of the RRB financing may also replace the $95m funding for the Wartsila engines, exchanging short-term monies for long-term.
Tribune Business understands that major global financial institutions, including the likes of J P Morgan and Credit Suisse, are interested in bidding on the BPL RRB contract and are already exploring and preparing their offers.
“We are aiming to issue an RFP before the month is out,” Mr Andrews said of the financial advisory contract. “We are aiming to [select a winner] some time in June; before the end of June.”