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LES leverages rating, market conditions for historic bond sale

LINCOLN — Last week marked a very successful taxable bond sale for Lincoln Electric System resulting in interest rates that appear to have been an all-time market low for the public power industry. The total 2020B bond issue size was $185.15 million. This refinancing allowed LES to restructure some of its debt and achieve net-present-value debt service savings of $16.4 million for LES customers. These savings will help to relieve some budget pressure in coming years.

The refinancing Sept. 2 was unique for the utility. Usually an issuer of only tax-exempt bonds, due to a federal tax law change in 2018, LES is no longer able to advance refund bonds on a tax-exempt basis. Typically, issuing taxable bonds to refund existing tax-exempt bonds would not result in cost savings. However, the interest rates in the market this year provided the conditions for issuers who issued tax-exempt bonds in the past to take advantage of historically low taxable rates. 

Seeing the right conditions in the market was step one. Step two for LES’ Financial Services team came in the form of balancing a bond sale with 2021 budget preparation. “The timing for the bond issue complicated things some as we were in the midst of preparing next year’s budget; however, it also was perfect timing as it provided the opportunity to relieve some 2021 budget pressure for our customers,” said Laura Kapustka, LES’ chief financial officer and vice president of Financial Services.

Due in part to LES’ strong AA bond rating and good market conditions, LES was able to sell its bonds at a historically low all-in interest rate of 1.64%. Issuing bonds at these low rates directly supports keeping customer rates low.

“As a public power utility, maintaining low rates aligns with our core values of safely and reliably serving our community while at the same time providing affordable service,” Kapustka said. “It is an added benefit to achieve cost savings for customers during a time when some in our community are struggling due to the economic impacts of the pandemic.”

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