Cali city approves renewables bonds
The city council in San Jose, California, has approved a 30-year renewable energy financing transaction in which bonds will back a Morgan Stanley prepaid supply deal.
The California Community Choice Financing Authority will issue tax-exempt non-recourse green revenue bonds for more than US$1bn in proceeds that will purchase the 30-year stream of clean power. Morgan Stanley will be assigned a portion of rights under San Jose Clean Energy's 93 power purchase agreements valued at US$3.2bn. The city will assign only a portion of its PPA rights to preserve diversification in its portfolio.
The city has a minimum annual savings target of 8% during the initial term of the bonds. The bonds are subject to mandatory tender after an initial six to nine-year term and will be remarketed several times after that term with a target savings of US$5 per MWh for reset periods after the initial term. The interest rate on the bonds is expected to be around 4%, according to a presentation at the city council meeting. Morgan Stanley will underwrite the bonds, PFM is municipal advisor and Orrick is bond counsel. Pricing is expected on December 11 and closing is expected on December 23.
The structure involves volumetric risk if suppliers fail to deliver and counterparty risks that will be mitigated by multiple swap counterparties and backup obligations from Morgan Stanley, the presentation said. Swap counterparties will be Natixis and parent Groupe BPCE.
