The Omaha Public Power District is seizing on strong demand in the U.S. municipal bond market.

The utility plans to issue up $220 million worth of revenue bonds next week.

OPPD will use proceeds from the issue primarily to refund, or retire, outstanding bonds from 2011 and 2012, effectively refinancing the older bonds with a better interest rate.

Replacing older, higher-interest bonds with lower rates means the utility will save “approximately $16 million” in today’s dollars, OPPD Chief Financial Officer Javier Fernandez told the OPPD board of directors on Nov. 16.

Said Fernandez: “Market conditions are turning to our favor quickly.”

Bond ratings firm Moody’s Investors Service assigned a rating of “Aa2” with a stable outlook to the new bonds and cited positive factors including growth in customers and economic resilience in OPPD’s service territory.

Moody’s also nodded to the utility’s plans to fund its capital projects through 2020 with cash from revenues instead of with debt.

The ratings agency does not expect to upgrade OPPD bonds “in the near term,” however, which means it could be some time before the utility improves by two steps and achieves the best rating of “Aaa.” Moody’s also cautioned that any costly missteps in decommissioning the closed Fort Calhoun nuclear plant could lead to a downgrade.

The OPPD board gave the go-ahead for management in September to monitor the markets and issue new bonds if it found an opportunity to save money. Fernandez said at the most recent board meeting that now is the time.

“We’re seeing a lot of inflows to the municipal market, so there’s more demand and lower rates,” he said.

Investors through the third quarter of 2017 have invested a net of more than $25 billion in municipal bonds, according to data from Morningstar Direct. That’s far less than inflows of more than $300 billion through the same period last year, but economic uncertainty before President Donald Trump’s election in November 2016 was a cause for investor anxiety. (Bonds are generally seen as a safer bet than stocks during potentially tumultuous economic periods.)

This year, there’s a different consideration emanating from Washington, D.C.: a proposed elimination of “advance refunding” for tax-exempt bonds issued by municipal and public power entities like OPPD that is being considered by Congress.

That proposal has prompted cities, states and other entities that issue tax-free bonds to rush to the market for the sole purpose of refunding the instruments years before their maturity dates, data from Bloomberg show.

Among other concerns, restricting the ability to refund such bonds could force public power utilities to raise rates on their customers, OPPD President and CEO Tim Burke wrote in a November op-ed with three other public power executives. The letter was published in the Hill newspaper on Nov. 9.

Fernandez told the OPPD board that the proposal in Congress isn’t the motivator to move more quickly than anticipated on the refunding. But if the federal tax overhaul passes as proposed, he said, “We would very likely wait until we’re close to the call date on the (2011 and 2012) bonds.”

cole.epley@owh.com, 402-444-1534

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