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According to a release, Senator Ada's Bill #483 would terminate older bond issues and allow for the restructuring of "certain revenue bonds".
Restructure, says Ada, could reduce the debt payments by as much as $8-million dollars a year.
Senator Ada is quoted in his release as saying that “the refinancing of an earlier short term borrowing will enable these debt service obligations to be extended over a longer period thus reducing GPA’s annual debt service cost. Furthermore, interest rates are lower today than it was when GPA initially took out the short term loan.”
READ the release from Senator Ada in FULL below:
Senator Tom Ada Introduces Bill to Reduce Power Rates
Through the Improve Refinancing of GPA’s Bond Obligations
Hagåtña, Guam: On Monday, June 25, 2012, Senator Tom Ada introduced Bill 483***-31 (COR), an act to approve terms and conditions to refund and restructure the refinancing of certain revenue bonds of the Guam Power Authority (GPA), and to terminate older obligations of the Authority). The refinancing will enable GPA to reduce its power rates.
Senator Tom Ada said that “the refinancing of an earlier short term borrowing will enable these debt service obligations to be extended over a longer period thus reducing GPA’s annual debt service cost. Furthermore, interest rates are lower today than it was when GPA initially took out the short term loan. Bill 462-31 is the result of nearly a decade of exploring opportunities to reduce debt service costs,” said Senator Tom Ada.
The primary point of focus for such reductions has been the Marianas Energy Corporation (MEC) plant contract, which is financed over a 20 year period even though the useful life of the plant is estimated to be 40 years. This short-term financing has placed a high burden on existing ratepayers to repay this debt faster than usual, with the highest debt payments emerging in the next few years, between now and 2018.While the Consolidate Commission on Utilities (CCU) has concluded that the MEC contract cannot be refinanced on terms beneficial to GPA customers, GPA has developed an alternative finance strategy to serve as a proxy for the savings from an MEC refinancing wherein GPA would perform a refinancing and restructuring of its currently outstanding bonds in order to accomplish the same purposes, reducing debt service costs by approximately $8 million per year through 2018, when the front-loaded Independent Power Producer contracts, including the MEC contract, will terminate.
“This legislative initiative will result in an estimated decrease of $8 million in annual debt service. This reduced annual expenditure is expected to savings, and provide an immediate relief to ratepayers by enabling GPA to roll back reducing the impact of recent rate increases that were recently implemented to generate an estimated $9.1 million per year to meet its annual debt service requirement,.by GPA,” said Senator Tom Ada.
The Guam Public Utilities Commission recently approved a May 1 base rate increase that would yield an estimated $9.1 million per year in revenues to GPA. The proposed refinancing contemplated by this legislation would effectively roll back nearly all of the recently approved rate hike.Based on historic low interest rates and current market conditions, GPA expects to be able to refinance certain maturities of its outstanding 1993 Series A and 1999 Series A revenue bonds for debt service savings, but in any event desires to refinance certain maturities of such bonds in order to restructure debt service in a manner resulting in more level total payments for capital costs, taking into account GPA’s current contract with Marianas Energy Company, which requires much higher capital payments through January, 2019.GPA entered into forward purchase agreements with Lehman Brothers and Bank of America for the investment of certain funds relating to its outstanding 1993 Series A and 1999 Series A revenue bonds, and it is necessary and desirable to terminate and retire one or more of those agreements in connection with such refinancing and restructuring of the outstanding 1993 Series A and 1999 Series A revenue bonds. “This carefully considered initiative will help close the books on some unattractive higher interest debt, while taking advantage of today’s low interest rates and GPA’s improved bond ratings,” Sen Tom Ada said.
“I look forward to a timely Public Hearing and speedy action on this very important initiative to improve GPA’s bond obligations. We must not delay in providing ratepayers with this financial relief,” added Senator Tom Ada.
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