Buffett Plans More Solar Bonds After Oversubscribed Deal
Warren Buffett’s MidAmerican Energy Holdings Co. is planning a second round of bonds to finance its $2.4 billion Topaz Solar Farm in California after investors sought more of the debt than was offered in the first public issuance for a U.S. photovoltaic power project.
The first Topaz bond offering, for $850 million, was oversubscribed by more than $400 million. Fitch Ratings, which gave the deal its lowest investment-grade rating of BBB-, said the second tranche will probably cover the balance of the $1.265 billion in debt MidAmerican needs to complete the 550-megawatt project.
The demand shows that renewable-energy projects, which provide steady revenue from long-term contracts to sell power to utilities, are becoming more appealing to investors, said Chris Yonan, a project finance director at Barclays Capital, which led a group of investment banks in underwriting the debt.
“The Topaz bond illustrates the deep and attractive source of financing available in the bond market to fund the construction of renewable-energy projects,” Yonan said in an interview yesterday. “There are a lot of takeaways here for wind and other segments of the renewable-energy market. It’s our hope that more and more of these deals get done.”
MidAmerican, a unit of Berkshire Hathaway Inc. (BRK), has been expanding its investments in renewable energy as it adds to its portfolio of coal and natural gas. The company created a business unit in January to support investments in wind, geothermal, solar and hydroelectric projects.
Ann Thelen, a spokeswoman for MidAmerican, said the company doesn’t discuss the details of its financing strategy. The company said “Topaz expects to issue approximately $430 million of additional senior secured notes” in its annual report this week.
“Demand was definitely oversubscribed, which is why they bumped up the amount to $850 million,” said Joseph Salvatore, an energy analyst with Bloomberg New Energy Finance. “They’re due to offer another issue soon that will cover the rest of the debt portion.” The Topaz bond offering was originally planned for $700 million.
The Topaz bonds were the largest for a renewable-energy project without a U.S. government guarantee and the first to be rated by the three top ratings companies, according to New Energy Finance. The notes are rated Baa3 by Moody’s Investors Service, its lowest investment grade, and Standard & Poor’s assigned the debt an equivalent BBB-, according to data compiled by Bloomberg.
“These types of bonds are attractive because of the yield and because of the long-dated liability, which matches the duration of the portfolios of insurance companies and pension funds,” Salvatore said today. Fixed-income investors have faced pressure as low interest rates reduce returns on bonds.
Topaz Solar Farms LLC on Feb. 16 issued $850 million of 5.75 percent, unsecured debt due in September 2039 that priced to yield 379.7 basis points, or 3.797 percentage points, more than similar-maturity Treasuries, according to data compiled by Bloomberg.
The rate on the 27.5-year notes is lower than the 5.875 percent coupons that Charlotte, North Carolina-based Bank of America Corp. and New York-based Citigroup Inc. got on 30-year bond offerings this year.
The average yield on Feb. 16 for BBB rated debt maturing in more than 15 years was 5.54 percent and has declined to 5.38 percent as of Feb. 28, the lowest in data going back to June 1998, according to Bank of America Merrill Lynch index data.
Two Solar Purchases
MidAmerican agreed in December to buy the Topaz project from Tempe, Ariz.-based First Solar Inc. (FSLR), which is supplying the solar panels. Later that month the Des Moines, Iowa-based utility holding company agreed to take a 49 percent stake in NRG Energy Inc. (NRG)’s $1.8 billion Agua Caliente solar project in Arizona.
MidAmerican has become the largest generator of wind energy among regulated U.S. utilities by investing or committing $6 billion to the renewable power source.
“We can make this sort of investment because MidAmerican retains all of its earnings, unlike other utilities that generally pay out most of what they earn,” Buffett said in his annual letter to Berkshire shareholders, posted on the company’s website Feb. 25. “Many more wind and solar projects will almost certainly follow.”
MidAmerican sells electricity to about 2.5 million customers in the U.S. and is the largest supplier in Iowa, Utah and Wyoming, according to the letter. The Berkshire unit also transports about 8 percent of the country’s natural gas through its network of pipelines.
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