20041129Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:TERRI CARLOCK
DATE:NOVEMBER 24, 2004
RE:IN THE MATER OF A VISTA CORPORATION'S APPLICATION TO
MODIFY EXISTING ORDERS: CASE NO. A VU-04-
On November 12, 2004, Avista Corporation (A vista) revised its Application to modify
the authority contained in Order No. 27153 issued in Case No. WWP-97-1 and in Order No.
28899 issued in Case No. A VU-01-3. Specifically, Avista proposes to secure these debt
obligations. Currently they are unsecured with negative covenants restricting the issuance of
additional secured debt. Market opportunities to issue new secured debt make it cost effective
to secure the Series C Medium-Term Notes and the Colstrip Pollution Control Bonds and issue
the additional debt as secured debt rather than as shorter term unsecured debt. Removal of these
negative covenants will provide A vista more flexibility on issuing debt; enable it to restructure
its credit facility on more favorable terms and at competitive rates. A vista expects that these
opportunities will allow it to reduce its overall costs and expenses related to its credit facilities
and borrowings. The outstanding debt authorities and other terms will not change.
Summaries of the outstanding issuances to be secured are as follows:
(1) In October 1997, Avista received approval from the Commission to issue up to
$250 000 000 of debt securities (and to refinance $85 000 000 of securities related to certain tax-
exempt debt securities, which was later supplemented by the authority granted in Order No.
28899). Avista issued $109 000 000 of Series C Notes under the authority granted in Order No.
27153. $88 850 000 of Series C Notes are presently outstanding. The Series C Notes are
unsecured obligations of Avista. Certain provisions of the Series C Notes limit the amount of
secured debt A vista can issue, unless it secures the Series C Notes.
DECISION MEMORANDUM - 1 -NOVEMBER 24, 2004
(2) In November 2001 , Avista received approval from the Commission to issue up to
$83 700 000 of securities in connection with the refunding of certain pollution control bonds
issued by the City of Forsyth, Montana, the proceeds of which had been loaned to Avista.
Avista issued $83 700 000 of securities related to the Colstrip Pollution Control Bonds under
the authority granted in Order No. 28899. $83 700 000 of Colstrip Pollution Control Bonds are
presently outstanding. The securities issued by A vista related to the Colstrip Pollution Control
Bonds are unsecured obligations of Avista.Conditions in the bond insurance agreement
pursuant to which bond insurance policies for the Colstrip Pollution Control Bonds were issued
similarly limit the amount of secured debt A vista can issue, unless it secures its obligations
related to the Colstrip Pollution Control Bonds.
Because of the anticipated time schedule and steps necessary to secure its obligations
related to the Colstrip Pollution Control Bonds by delivery of its first mortgage bonds to the
trustee for the holders of such bonds, A vista believes that it would be prudent, as an initial
interim step, to deliver first mortgage bonds directly to the bond insurer. This interim step will
operate to eliminate the negative covenant contained in the bond insurance agreement until such
time as Avista is able to deliver its first mortgage bonds to the trustee for the benefit of the
holders of the Colstrip Pollution Control Bonds. In this way, A vista hopes to pursue the present
financial market opportunities, while it works to satisfy the necessary steps for delivery of first
mortgage bonds to the trustee for the holders of the Colstrip Pollution Control Bonds. Any first
mortgage bonds delivered to the bond insurer would be returned and surrendered upon the
issuance and delivery of first mortgage bonds to the trustee for the benefit of the holders of such
bonds.
STAFF RECOMMENDATION
The proposed securitization authority provides an opportunity for A vista to reduce
borrowing costs and to increase flexibility with future refinance options. Staff recommends
approval of the requested authority to modifying Order No. 27153 and Order No. 28899 to allow
Avista to issue secured obligations in order to remove the negative covenants contained in the
conditions of the Series C Notes and the bond insurance agreement for the Colstrip Pollution
Control Bonds. A vista will retain documentation showing the reasonableness and cost
effectiveness of all issues, refunding, replacements, conversions or exchanges.
DECISION MEMORANDUM - 2-NOVEMBER 24, 2004
COMMISSION DECISION
Does the Commission accept Staff's recommendations to approve A vista s request for
authority to modifying Order No. 27153 and Order No. 28899 to allow Avista to issued secured
obligations in order to remove the negative covenants contained in the conditions of the Series C
Notes and the bond insurance agreement for the Colstrip Pollution Control Bonds?
CwJo~
Terri Carlock
i:udmemos/avuuO4.dmll.2004
DECISION MEMORANDUM - 3 -NOVEMBER 24, 2004