Municipal Electric Authority of Georgia to sell $373 million in bonds

The Municipal Electric Authority of Georgia's $373 million of subordinated bonds are scheduled to price on Sept. 5.

The bonds are rated A2 by Moody's Ratings and A-minus by both S&P Global Ratings and Fitch Ratings. The ratings have stable outlooks.

BofA Securities will serve as senior manager and Goldman Sachs (GS) and Wells Fargo Securities will co-senior manage the deal. Academy Securities, PNC Capital Markets (PNC), RBC Capital Markets, Ramirez & Co., Stephens, and TD Securities will also be managers.

MEAG will offer $350.6 in Project One subordinated bonds and $22 million in general resolution projects subordinated bonds, both series 2024A. The Project One bonds will have serial maturities from 2026 through 2044 and term maturities in 2049 and 2054. The $20 million of general resolution projects bonds will have serial maturities from 2026 through 2034.

Optional redemption dates are to be determined.

The bonds' proceeds will be used for capital projects and for refunding bonds, commercial paper, and revolving credit notes.

MEAG is a public power utility serving 48 cities and towns and one county. It sells electricity to these entities, which then sell it to 324,000 customers. It has 2,300 megawatts of generation capacity, including 1,308 MW of nuclear power, 489 MW of coal, and 503 MW of natural gas. It also purchases 398 MW of hydrological power. It owns 1,323 miles of transmission lines and 215 substations.

The Project One projects comprises 855 MW of capacity, mostly nuclear. The general resolution projects comprise of 443 MW of capacity, mostly coal.

Each participating municipality covenants to charge sufficient rates to make its payments to MEAG. The payment obligation is unconditional, whether or not the municipality chooses to accept MEAG power. The obligation is also a general obligation, which the municipality's full faith and credit is pledged.

S&P said its ratings "reflect the commencement of commercial operations at Vogtle nuclear unit 3 and unit 4 [in summer 2023 and spring 2024, respectively], which we believe reduced operating and financial risks facing MEAG Power."

S&P also highlighted the large and growing customer base, a court-validated general obligation pledge to levy an ad valorem tax if the electric revenues are inadequate, solid operating performance at the generating fleet, and significant liquidity at MEAG, which could cover about 2.5 years of operating expenses.

Although MEAG's wholesale rate is competitive, the municipalities' retail rates are above average and MEAG has extraordinarily high debt levels, S&P said. As of December 31, 2023, MEAG had $9.46 billion in debt. Most of the debt stems from the construction of the nuclear units.

Fitch and Moody's pointed to similar factors in their ratings reports.

Fitch noted much of the electric demand growth in 2022 and 2023 came from cryptocurrency mining operations. Demand is expected to grow over 15% in 2024.

In May the U.S. Environmental Protection Agency released standards for carbon emissions for existing coal plants. The regulations would require closure or significant modification of coal plants by 2032. "The risk appears manageable since MEAG's only remaining coal generation is its share of the Scherer units 1 and 2, which totals 490 MW. Only 162 WW is included in Project One."

PFM is the municipal advisor and Nixon Peabody is the special tax counsel on the deal.