by Mike Sharkey
Staff Writer
In an effort to potentially save money, JEA is asking City Council to approve the refinancing of $1.8 billion in debt from the utility’s electrical system.
While this type of refinancing in theory may be similar to refinancing a home at a lower interest rate, JEA’s process is much more complicated and involves multiple players.
“Under the City Charter, the City Council must authorize all debt by JEA,” explained JEA CFO Paul McElroy, adding the JEA has a longstanding practice of looking at its financial plan over a 3- 5-year period. “Our board must approve it and the Council must approve or authorize the debt.”
According to McElroy, the debt currently carried by JEA’s electrical system is about $4 billion while the water and sewer system debt is about $2 billion. Combined, McElroy said the exact amount is $6.157 billion.
However, unlike refinancing a consumer loan or a mortgage, JEA will not add to its debt or lengthen the term of the bonds that have been issued in the past or may be issued as a result of the legislation introduced to Council last night. McElroy said the legislation addresses just the electrical system debt and nothing else. He stressed the legislation is not meant to incur $1.8 billion in new debt but rather possibly to use JEA’s strong bond rating to secure a lower interest rate on the current debt.
“If there are good market conditions, we may have an opportunity to refinance up to $1.8 billion,” he said. “When JEA just does refinancing of debt, we always do it within the exact structure of the debt. We do not extend the length of time on the debt and our target is to save 5 percent.”
Helen Kehrt, JEA’s director of treasury, said JEA has several options to refinance the debt.
“We will use a group of underwriters who will go out to the bond market and find the investors or loans or those who want to invest in JEA,” she said, adding as a part of a municipality, JEA is eligible for tax-free bonds. “It will depend on the market conditions. If we get a 30-year bond, the interest rate may be close to 5 percent or under. Anything under 5 percent is a very good rate.”
McElroy said JEA’s current bond rating is AA-, the fourth-rating possible. The only three ratings higher are AA, AA+ and AAA.
“The U.S. government is rated AAA, which is as good as it gets,” said McElroy.
He also explained that if approved, the debt could be restructured through a series of different bonds, some of which may cover as little as $25 million or as much as $200 million. He said of the $6 billion in overall debt, there may 100 or so different bonds that have been issued.
“It’s a very complicated schedule. We are constantly monitoring our debt portfolio,” said McElroy.
The legislation has been assigned to just the Council’s Finance Committee, which will first take up the bill Monday. McElroy said a JEA representative will be at the meeting to answer any questions the committee members may have. He doesn’t expect the legislation to linger in committee very long before being sent back to the full Council for approval.
“Historically, we have been able to explain things very well,” said McElroy. “This is not an issuance of additional debt. It’s just the authorization to refinance existing debt on terms more economic to JEA.”
356-2466