FMPA Issues Statement to Investors about Auction Rate Securities
ORLANDO, Fla., April 25, 2008 – FMPA issued a statement today to investors announcing that the Agency plans to take action to restructure its debt portfolio to eliminate the use of auction rate securities.
“We have observed with concern the growing instability in the auction rate securities market,” said FMPA General Manager and CEO Roger Fontes. “We share our investors’ disappointment with this turn of events, and I can tell you that we are working diligently to address the situation by transitioning our debt portfolio to different debt instruments that better meet our investors’ current needs.”
FMPA has historically included alternative debt structures in its debt portfolio to reduce debt service costs and increase financing flexibility, with the ultimate goal of reducing costs for its ratepayers. One type of variable-rate debt instrument, known as auction rate securities, comprises a portion of the Agency’s debt portfolio. Auction rate bonds are those with interest rates that are determined by open-market competitive bidding, which typically occurs every seven, 28 or 35 days. When there are not enough new investors, the auction does not clear and existing bondholders who wanted to sell must hold the securities. Interest rates after non-clearing auctions are set at a level described in Official Statements issued at the initial bond sale. (Detailed information about this type of securities and its terms and conditions can be found in the Official Statements for each bond issue. Bondholders who wish to obtain a copy of the Official Statements can contact Janet Davis or Edwin Nunez at FMPA.)
In recent months, the U.S. financial markets have had a crisis of liquidity and credit, and the market for these auction rate securities has become increasingly unstable. Auction failures are commonplace throughout the market and have increased interest costs on all of FMPA’s auction rate securities.
FMPA’s Board of Directors and Executive Committee voted on March 27, 2008, to authorize staff to take actions designed to eliminate auction rate securities from the Agency’s debt portfolio. The Agency’s staff and financial advisor are moving rapidly to implement that direction. FMPA’s $1.3 billion debt portfolio has many series of auction rate securities, so the process of exiting the auction rate market is anticipated to take several months.
FMPA recently issued a request for proposals seeking instruments to restructure the Agency’s debt portfolio. Responses to the request are currently being analyzed and refinancing plans developed. FMPA hopes to begin converting some of the auction rate securities as early as late-May 2008, with a goal of having the overall conversion substantially complete by autumn of this year. Plans and schedules for the transition have not been finalized yet. Updates will be issued when more is known.
“We appreciate the patience and support of our bondholders during this time of transition in the financial markets, and we hope that our upcoming issuances will be attractive to our investors,” said Fontes.
Florida Municipal Power Agency (FMPA) is a wholesale power company owned by 30 municipal electric utilities. FMPA provides economies of scale in power generation and related services to support community-owned electric utilities. The members of FMPA serve approximately 2 million Floridians. FMPA’s members are Alachua, Bartow, Blountstown, Bushnell, Chattahoochee, Clewiston, Fort Meade, Fort Pierce, Gainesville, Green Cove Springs, Havana, Homestead, Jacksonville Beach, Key West, Kissimmee, Lake Worth, Lakeland, Leesburg, Moore Haven, Mount Dora, New Smyrna Beach, Newberry, Ocala, Orlando, Quincy, St. Cloud, Starke, Vero Beach, Wauchula and Williston.