Presentation to Wyoming Natural Gas Pipeline Authority: Financing Natural Gas Pipeline Projects in Wyoming August 26, 2003
Transcript
Slide 1
Presentation to Wyoming Natural Gas Pipeline Authority:
Financing Natural Gas Pipeline Projects in Wyoming August 26,
2003
Slide 2
Merrill Lynch Qualifications
Slide 3
Wyoming Natural Gas Pipeline Authority Coverage Team Ed Burdett
Managing Director & Head of the Western Region Greg DawleyJason
Wong Vice President Associate Western Public Power Group John
Kohansion Analyst Shouq Tarawneh Analyst Financial/ Strategic
Advisory Services Investment Banking Public Power Expertise Tax
Expertise Rating Agency Advisory Financial Modeling and Structuring
Public Finance Industry Strategic Dynamics Timely Access to Key
Decision Makers Market Intelligence Story Building/Investor
Positioning Consistent Dialogue Global Power & Utility Group
Buyside/Sellside Valuation Transaction Structuring Corporate and
Municipal Restructurings Knowledge of Market Dynamics/ Industry
Players Mergers & Acquisitions AAA Rated Counterparty Hedging
Strategies and Products Interest Rate Reduction Products Risk
Management Energy Price risk Management Fuel HedgingCommodities
Investment Grade High Yield Private Placements Market Making
Research Coverage Investor Relations Risk Management Fixed Income
Credit Analysis Rating Agency Guidance Investor RelationsCredit
Attending Rob Barber Managing Director & Co-Head of Public
Finance Bryon Rockwell Director Garth Schulz Director Risk
Management Mona Payton Director Phil Dobitsch Director Short Term
Municipals Kuljinder Chase Managing Director David Koenig Vice
President Commodity Trading Chris Fink Managing Director Mark
Widener Director David Moffett Associate Utility Group Dave
Andersen Managing Director and Head of Syndicate Desk Paul Kuhns
Managing Director Underwriting Sales & Trading Bill Rogers
Managing Director Scott Trachsel Vice President Debt Capital
Markets David Stephens Director Bill Wood Senior Banker Chris
Straub Vice President Quantitative Analysis Laurie Coben Managing
Director & Head of NY Group Mary Ryan Managing Director
Corporate Power & Utilities Investment BankingCapital
Markets/Financings
Slide 4
Capital Strength and Stability Merrill Lynch Qualifications
Merrill Lynchs capital base allows the Firm to: Commit large
amounts of capital across all business lines Aggressively
underwrite our clients bonds and provide secondary market liquidity
under all market conditions. The Firm routinely commits 20% to 30%
of an issue size in capital, and on occasion up to 100%, depending
upon market conditions at pricing. Take an aggressive position
limit for municipal trading and underwriting of $1.5 billion, an
amount we believe to be among the highest in the industry Merrill
Lynch Ratings Aa3/P-1 A+ /A-1 AA-/F1 The size and stability of
Merrill Lynchs capital base allows the Firm to inventory when
necessary rather than re-price
Slide 5
Merrill Lynchs Bankers Have Extensive Experience Working with
Public Power Financings Sacramento Municipal Utility District
Florida Municipal Power Agency Lower Colorado River Authority Omaha
Public Power District New York Power Authority Illinois Municipal
Power Agency Turlock Irrigation District M-S-R Public Power Agency
Piedmont Municipal Power Agency City Public Service, San Antonio
Anaheim Public Utilities Utility Board of Key West Santee Cooper
Merrill Lynch Qualifications Utah Associated Municipal Power System
Intermountain Power Agency Los Angeles Department of Water and
Power Southern California Public Power Authority Northern
California Power Agency Colorado Springs Utilities Salt River
Project Oklahoma Municipal Power Authority Nebraska Public Power
Agency Silicon Valley Power Transmission Agency of Northern
California Pedernales Electric Cooperative Southern Minnesota
Municipal Power Agency Public Power Financings
Slide 6
Actively trading financially settled products for Natural Gas
Natural Gas NYMEX forwards and swaps (prompt month to 10 years)
NYMEX option structures (prompt month to 5+ years) Financial Basis
Swaps - US and Canada (prompt month to 10 years) Physical forwards
(All major locations) Developing infrastructure for: Crude Oil
(within the month) Financial Swaps (1 month to 5 years) Options
(Caps, Collars, Floors and Exotics) Outright and differentials to
WTI and Brent Oil Products (within the month) Heating Oil, Jet
Fuel, Gasoline, Diesel, Residual Fuel Oil, NGL Swaps Forwards and
futures Spot and term Options (Avg price, zero cost collars,
Exotics) Capabilities of Energy Markets and Trading Electricity
Currently trading in PJM/NY/NEPOOL Market Forwards and Strips (next
day to 2+ years) Options (Daily, Monthly and Calendar) Heat Rate
Swaps and Options Merrill Lynch Qualifications
Slide 7
El Paso Natural Gas $15.7 billion sale of Costal Corp. $5.8
billion merger of El Paso/Sonat Inc. Northern Border Partners $190
million Equity Offering Questar $200 million Senior Notes $250
million Senior Notes Enbridge Energy Partners LLP $178 million sale
of gathering and treating company $110 million acquisition of
AltaGas stake The Williams Cos. $780 million divestiture of Trans
Canada Pipelines- Midstream Assets $800 million Senior Notes $693
million Senior Notes $625 million Senior Notes Capabilities of Oil
and Gas Investment Banking Merrill Lynchs strong experience with
energy companies provides the Authority with the expertise from
both the corporate and public finance sectors Merrill Lynchs 70
person Energy and Power Group has completed more transactions than
any other firm Lead manager on approximately $20 billion of
midstream public debt offers since 1993 Financial advisor on $68
billion (47%) of midstream M&A transactions since 1998 Worked
on transactions for such Rocky Mountain Region-involved companies
such as: Kinder Morgan Energy Partners $ 8.2 billion acquisition of
Westcoast Energy $1 billion Notes $400 million floating rate and
senior notes
Slide 8
Market and Industry Update
Slide 9
(1)As of August 20, 2003 Market Update and Analyses Current and
Historic (5-Year Average) Yield Curves (1) Rate
Slide 10
Interest Rates are near Historical Lows (1) Tax-Exempt Market
Update Low Interest Rates Have Compressed the Ratio Between Taxable
and Tax-Exempt Debt (1)Rates as of August 18, 2003
Slide 11
The last two months has seen historically dramatic interest
rate increases: The recent bond market correction is greater than
any three month loss for bonds dating back to 1927 Recent
Volatility Interest Rate Markets
Slide 12
Merrill Lynch Interest Rate Outlook As of August 1, 2003 Market
Update and Analyses Rate
Slide 13
Financing Options
Slide 14
Wyomings Natural Gas Basins Wyoming has many underutilized
natural gas supply basins.. Financing Options Big Horn
Denver-Cheyenne Green River Laramie Overthrust Powder River Thrust
Belt Williston Wind River
Slide 15
QUESTAR CORPORATION Financing Options Colorado Interstate Gas
Company, an El Paso Company Kinder Morgan Interstate Gas
Transmission LLC Northern Plains Natural Gas Company Questar
Williston Basin Interstate Pipeline Proposed Wyoming Natural Gas
Pipelines/Projects Proposed pipeline projects on the drawing board
to help export Wyoming natural gas from companies such as:
Slide 16
The funding environment for natural gas projects is challenging
Companies wanting to build natural gas pipeline projects have had a
difficult time raising cost effective capital: Creditworthiness of
shippers Parent companies under credit stress Bank facility market
very expensive if available at all Investors avoiding energy sector
Before the Authority became proactively involved in the Wyoming
marketplace, potential pipeline projects could only look to the
market for financing options. Project Finance most commonly used
funding structure for pipeline projects Financing Options Funding
Environment
Slide 17
Financing Options Deal most likely secured by shipper
agreements for life of bonds Most transactions below investment
grade 70 percent debt structure is aggressive in todays market
Credit rating will follow closely with lowest-rated shippers Deals
rarely longer than 15 years without direct guarantee from pipeline
owner Project Finance General Project Finance Deal Parameters:
Slide 18
926-mile interstate pipeline transporting gas from Rocky
Mountains to California Kern River closed on purchase of original
pipeline from Williams Companies on March 27, 2002 $875 million
Project Financing secured by credit facility closed on June 21,
2002 Variable rate structure increasing over term of facility $1.2
billion expansion project initiated construction on August 6, 2002
-717-mile loop pipeline from Lincoln County, Wyoming to Kern
County, California $836 million of its 4.893% Senior Notes with a
final maturity of April 30, 2018 closed on June 1, 2003 to
terminate credit facility Senior notes share pari passu in all
collateral available to Kern Rivers senior noteholders Financing
Options Project Finance Project Finance Example: Kern River Gas
Transmission Company
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Results: Credit Ratings: Standard & Poors A-/Moodys Baa 70
percent debt and 30 percent equity Financing secured by binding
long-term 10-15 year firm transportation agreements with 17
different shippers Minimum debt service coverage of 1.55X Running
near capacity since opening in spring of 2003 of 1.73 billion cubic
feet per day Project Finance Project Finance Example: Kern River
Gas Transmission Company Financing Options
Slide 20
Project Finance WPA Example: Cheyenne Plains Pipeline Gas
Company Project Financing Options Proposed 380 mile 30/36-inch
natural gas pipeline from Cheyenne Hub to Kansas In service goal of
August 2005 Up to 1.8 bcfd of capacity Financing needs of $332
million to $410 million. 14 transportation service agreements for
10-year+ provide 100% subscription Current subscription period for
36-inch pipeline still outstanding 60 percent debt and 40 percent
equity proposed
Slide 21
Project Finance WPA Example: Cheyenne Plains Pipeline Gas
Company Project Financing Options The credit rating for this
project financing will be a mix of all the shipper participants
Cheyenne Plains Project Subscription Amounts and Shipper Credit
Ratings
Slide 22
(1)Advocate for Wyoming Natural Gas Marketplace - Authority
continues to address issues such a permitting, regulation, market
aggregation, and legislative support (2)Issuing Authority for
Projects Bonds - Providing State tax-exemption (3)State of Wyoming
Investment Participation - State invests funds in bonds issued by
Authority (4)State of Wyoming Moral Pledge - State backs project
debt service if project revenues fail to meet required levels
(5)State of Wyoming Revenue Pledges - State provides revenues to
back reserve fund or otherwise pay debt service Potential Role of
Authority in Funding Gas Pipelines Financing Options By enhancing
the financing of new gas pipelines, the State will benefit through
increased economic activity
Slide 23
The State of Wyoming Treasurers Office is considering the
option of purchasing revenue bonds backed by Authority The State
could also utilize funds from its rainy day fund to purchase bonds
in the market if necessary. This potential market support would be
very helpful during the marketing and pricing of the related bond
transaction Must ensure that investments meet fiduciary
requirements of State This participation enhances the marketability
of the issue but not the credit State Investment Participation
Financing Options
Slide 24
State of Illinois Energy For Illinois 2001 Coal Revival
Initiative $3 billion in State authorization intended to lure coal
companies interested in building coal-burning power plants State
moral obligation backing up to $300 million in revenue bonds
provide additional credit enhancement for project(s). State must
cover shortfalls on bond payments Kicks in once reserve fund tapped
Governor notifies and General Assembly then approves an
appropriation to replenish the reserve Less valuable in times of
governmental fiscal stress State Moral Obligation Example Financing
Options
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(1)Help Cheyenne Plains to continue to pursue FERC approval
goal of April 1, 2004 (2)Help project to receive bridge financing
once approved/bond anticipation notes (3)Pursue legislative
changes, if desired, during the Wyoming 2004 Budget Session, which
convenes February 9, 2004 (4)Utilize moral pledge or revenue pledge
structure, if approved by the State Legislature, to help issue
10-year fixed rate bonds at a cost lower than a stand-alone project
financing Recommended Next Steps for WPA WPA Example: Cheyenne
Plains Pipeline Gas Company Project Financing Options
Slide 26
101 California Street, Suite 1225 San Francisco, California
94111 Tel: (415) 676-3210 Fax: (415) 676-3351
[email protected] Contact Information Ed Burdett, Managing
Director and Head of Western Region Ed Burdett, Managing Director
and Head of Western Region 350 South Grand Ave., Suite 2830 Los
Angeles, California 90071 Tel: (213) 217-4504 Fax: (213) 217-4530
[email protected] Greg Dawley, Vice President Greg Dawley,
Vice President
Slide 27
Presentation to Wyoming Natural Gas Pipeline Authority:
Financing Natural Gas Pipeline Projects in Wyoming August 26, 2003
NY000WUA.ppt 08/22/2003 10:43 AM (1)