The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

“Final discussions” are being held to select the advisers for Bahamas Power & Light’s (BPL) mega refinancing that will place the crisis-stricken utility on a “much more stable” footing.

Geoff Andrews, chairman of the special purpose vehicle (SPV) that will issue the rate reduction bonds (RRB) to restructure BPL’s multiple legacy liabilities, told Tribune Business yesterday that BPL’s latest load shedding and outage woes had merely “highlighted the importance” of giving the company financial breathing room to develop long-term solutions for its problems.

He revealed that the SPV’s Board was in the final phase of selecting the RRB issue’s financial adviser, placement agent and arranger after interviews with “shortlisted” institutions were held last week.

Confirming that The Bahamas Rate Reduction Bond Ltd was still on target to select a preferred bidder by month’s end (which is Sunday), Mr Andrews declined to identify bidders given what he described as the sensitive nature of deliberations.

However Tribune Business sources, speaking on condition of anonymity, said two of the bidders interviewed were Goldman Sachs and a partnership between Credit Suisse and CIBC FirstCaribbean. Mr Andrews confirmed that more than three institutions were interviewed in a selection process that is being managed and advised by the Ernst & Young (EY) accounting firm.

“The recent problems that BPL has experienced just highlight the importance of looking at long-term solutions to these things rather than keep coming up with short-term solutions,” Mr Andrews told Tribune Business.

“It’s our hope and belief that with this overall refinancing, and getting the company much more stable, it will be able to take a long-term approach to working out its problems. It’s [the RRB issue] very important. This is part of a bigger overall plan to retool the company for a more stable long-term footing.”

Many of BPL’s 100,000-plus New Providence customers, together with businesses and residents on islands such as Abaco, Eleuthera and Bimini, will be far more concerned on the short-term energy supply situation than long-term fixes.

However, the upcoming RRB issue that is targeted for completion by November 2019 is critical to freeing BPL’s balance sheet from its legacy debt, pension deficit and environmental remediation liabilities so that it has the financial space/headroom to invest in upgrading its deteriorating national energy supply infrastructure.

Mr Andrews confirmed that the SPV, called The Bahamas Rate Reduction Bond Ltd, was making progress towards selecting the main financial adviser for the RRB - a key first step towards the bonds’ placement.

“There were interviews held last week,” he said. “EY was engaged by both BPL and the rate reduction bond company as advisers for the transaction. We are in the final discussion phase, and still in negotiations with the various institutions.

“At this point, given the delicate nature of it, I don’t want to say much more. We are certainly in the final discussions on making a decision. We started with a list of 10 institutions, and a couple of them did not submit a bid. We shortlisted, and had the interviews with those on it. There were more than three on our shortlist, and so far we’re on track with where we want to be in terms of timeline.”

The former Deloitte & Touche accountant and partner last month told this newspaper that a portion of the needed RRB capital “will definitely” be raised from Bahamian investors, although the total sum sought - locally and internationally - was likely to be less than the original $650m.

BPL’s RRB refinancing, while essential to its future financial health, may provoke controversy among some elements of Bahamian society given that it is ultimately the state-owned energy monopoly’s customers that will pay for it via an extra charge that will be added to their monthly bills.

The original RRB plan, developed by the former Christie administration under the Electricity Rate Reduction Bond Act, calls for the sums raised by this additional charge to be used to pay the interest owed to investors who purchase the bonds.

While the proposed charge is somewhat miniscule in relation to the overall size of household and business bills, the Government will likely be wary of a backlash from consumers already fully vexed by high energy costs that are eating into profits and disposable incomes - not to mention the latest outages and disruption to lives.

The November target-date for the RRB’s completion coincides with when BPL’s $95m generation investment in 132 Mega Watts (MW) of additional capacity is due to come online, and the Government is likely hoping that the reduced costs and improved reliability from the Wartsila engines will offset any RRB charge on consumer bills.

That investment, and the proposed multi-fuel Shell power plant that is supposed to become operational by 2022, are other critical elements in the BPL rescue/turnaround strategy. Besides lowering energy costs and improving supply reliability, this will also get BPL out of electricity generation, thereby enabling it to focus on improving its transmission and distribution (T&D) network and customer service.

The Bahamas Rate Reduction Bond Ltd, not BPL, that will be responsible for issuing the bonds and paying investors due interest - collected from BPL customers - to service this obligation.

This structure will exchange BPL’s legacy Bahamas Electricity Corporation (BEC) debt and other liabilities for new debt, which will be kept off BPL’s balance sheet via the SPV’s role as issuing agent.

The old liabilities include around $350m in bond and bank debt; a $100m employee pension fund deficit; and other assorted liabilities including the cost of environmental clean-ups at various sites around The Bahamas. It is likely that some of the RRB financing may also replace the $95m funding for the Wartsila engines, exchanging short-term monies for long-term.