August 2, 2017 / 5:38 PM / 7 months ago

South Carolina utility bonds trade heavily after nuclear nixed

NEW YORK, Aug 2 (Reuters) - Santee Cooper’s tax-exempt revenue bonds traded heavily in the days after the South Carolina public utility said it would cancel a nuclear project stymied by steep cost overruns and years of delays.

Bond prices held steady but volumes increased when the Santee Cooper board of directors voted on Monday to halt construction on its two unfinished nuclear reactors in remote Fairfield County. They were projected to go 75 percent over the initial budget, to as much as $24 billion, before completion.

The project is less than 40 percent complete with $9 billion spent on construction.

The stable bond prices are likely the result of investor confidence in the utility’s ability to recover costs lost on the project, known as V.C. Summer, said Joseph Krist, a partner at the Brooklyn-based public finance consulting firm Court Street Group Research.

Under its bylaws, Santee Cooper can recoup costs through its customers, who have seen about a 20 percent increase in rates tied to V.C. Summer since it was approved about a decade ago. “That’s why I think things are relatively calm,” Krist said. South Carolina Public Service Authority’s 5.25 percent revenue bonds due 2055 last traded at a bid price of 112.354, yielding 3.522 percent, according Municipal Securities Rule Making Board data. Their 5 percent 2034 bonds traded last at a price of 110.60, yielding 3.587 percent . Trading volume for the two bonds over Monday and Tuesday spiked to $30 million, well above their average.

Raising rates enough to recoup costs and maintain the financial margins, debt service margins and liquidity that has historically pleased Santee Cooper bondholders and creditors might not be as easy as the laws allow.

The utility could face pressure to draw on its financial cushion rather than impose steep and politically unpopular rate hikes on customers, said Fitch Ratings analyst Dennis Pidherny.

“Our historical observation is that when entities are under political pressure, they do tend to operate with tighter margins,” Pidherny said. “Santee Cooper will recover costs... the question is whether they will maintain the same robust financial profile.”

Santee Cooper owns 45 percent of V.C. Summer while SCANA Corp owns the balance.

Fitch Ratings, which has Santee Cooper rated A-plus, put it on negative watch in February. Moody’s Investors Service lowered its rating outlook to negative from stable in March over uncertainty the project’s chief contractor, Westinghouse Electric Co., was financially viable.

Westinghouse filed for bankruptcy shortly thereafter.

Reporting by Laila Kearney; Editing by Daniel Bases and Andrew Hay

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