Nalcor, Emera Plan C$4 Billion in Bonds for Hydro Project

Power companies in Newfoundland and Nova Scotia plan to sell more than C$4 billion ($3.9 billion) in bonds starting this year to finance a hydroelectric project that would supply power to eastern Canada and New England.

Nalcor Energy and Emera Inc., jointly developing the project, plan to finance 60 percent to 70 percent of its estimated C$7.6 billion cost by selling long-term debt, Nalcor Chief Executive Officer Ed Martin said in an interview yesterday in Ottawa.

Prime Minister Stephen Harper said in November the Canadian government would guarantee as much as C$6.3 billion of the project’s debt for as many as 40 years. That should allow the bonds to carry Canada’s AAA sovereign debt rating, Martin said, adding to their allure and lowering borrowing costs.

“You’re getting the best Canada AAA rating,” Martin said. “Those benefits are actually flowing through to the ratepayers of Newfoundland and Labrador and Nova Scotia.”

Companies such as Nalcor are trying to take advantage of historically low interest rates to lock in long-term financing for their projects. Bank of Canada Governor Mark Carney said yesterday his 1 percent policy interest rate would probably be unchanged “for a period of time” after inflation slowed more than projected.

Utilities plan to boost investment spending by 7.7 percent this year, Statistics Canada said Feb. 27, compared with a 1.7 percent increase for all private and public companies.

Payment Stream

The creditworthiness of the bonds will be reinforced by a reliable stream of payments from customers in the two provinces, Martin said. “It’s a very robust debt issuance and we expect it’s going to capture a lot of interest.”

The project, along the Lower Churchill River in Canada’s easternmost province, includes plans for an 824-megawatt generating facility and transmission lines connecting Newfoundland and Labrador with Nova Scotia.

Nalcor, based in St. John’s, Newfoundland and Halifax-based Emera hope to start selling the bonds as early as the third quarter, Martin said. The companies will probably issue bonds with maturities between 30 and 50 years.

The companies plan to hire a lead financial adviser to arrange the sale within the next two to three months, he said.

A spokeswoman for Emera, Dina Bartolacci Seely, referred to regulatory documents in which the company said debt financing for the first phase of the project should be completed by the end of this year.

The federal government guarantee should enable the companies to issue debt at similar yields paid by federal agencies such as Canada Mortgage & Housing Corp., Emera said in the application submitted to Nova Scotia regulators in January.

Newfoundland Hydro

A 6.65 percent bond due August 2031 issued by Newfoundland and Labrador Hydro, a Nalcor subsidiary, yielded 3.39 percent yesterday, according to Bloomberg composite data, 100 basis points above government benchmarks. The premium demanded by investors to hold the debt widened from 76 basis points Feb. 13.

The company’s bonds with maturities of 15 years or more returned 0.56 percent in February, compared with an average of 0.47 percent for similar-maturity bonds in the Bank of America Merrill Lynch AAA-A Canada Broad Market Index.

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