Basin Electric’s financial strength comes in many forms.
It comes in the form of 30 investors working with Basin Electric during the Rural Utilities Service buyout.
It comes in the form of the urea project financing for Dakota Gas’ Great Plains Synfuels Plant, especially in the midst of dropping commodity prices.
It comes in the form of strong bond ratings from the three major rating agencies.
From a financial standpoint, 2015 was an historic year for Basin Electric and all of the change and activity was done with the best interest of the membership as top priority. Basin Electric works on behalf of its members to best serve them.
Largest private placement transaction in 2015
The most significant financial activity in 2015 was the cooperative’s efforts to buy out of the Rural Utilities Service (RUS). The driver of that decision was the National Environmental Policy Act (NEPA) rules proposed by the U.S. Department of Agriculture Rural Development office. The rules would have greatly impacted Basin Electric’s ability to conduct and transact business with RUS in a timely manner.
In a private placement transaction that spanned several weeks in preparation and numerous investor presentations that took the finance team across the U.S., Basin Electric received $1.9 billion in initial offers. Ultimately, Basin Electric borrowed $1.5 billion given the attractive interest rates the cooperative was offered. To complete the RUS buyout, Basin Electric needed $1.2 billion, so the $300 million differential was used to partially fund projects currently under construction.
The transaction was significant for multiple reasons. It was the largest private placement transaction involving a generation and transmission cooperative. It was the largest U.S. private placement transaction across all sectors in 2015. It was the third largest U.S. private placement transaction ever to date. Also, Basin Electric is now working with its first foreign investor, South Korea’s Dongbu Insurance. The cooperative’s transaction was the first globally marketed G&T transaction, and the first U.S. private placement marketed to an Asian investor.
While, there were 30 investors in the RUS buyout, Basin Electric relied heavily on one of its cooperative allies, the National Rural Utilities Cooperative Finance Corporation (CFC). CFC was the largest investor at $227 million. While the NEPA rules appear to be a bit less onerous than initially anticipated, other challenges such as the potential impact of the EPA’s Clean Power Plan, confirm that buying out of RUS was the right decision.
Financing urea production construction
Another financial feat in 2015 was the financing of the urea project at Dakota Gas. In May, Dakota Gas closed on a private placement to fund the bulk of the investment required for the plant. The private placement is comprised of $475 million of secured long-term debt provided by a group of four investors. Once again, the cooperative relied on its cooperative allies. In this transaction, CoBank and some of its affiliated farm credit system members were the largest investors at $200 million.
Individually, these private placement transactions are extremely significant, and they were only possible because of Basin Electric’s strong financial condition and associated credit-worthiness. These attributes are bolstered by the financial strength of the entire membership, and membership’s respective wholesale power contract extensions.
It was a good year for Basin Electric. The accomplishments of the finance team exemplify their commitment to the mission of Basin Electric. The cooperative is in sound financial condition to meet the needs of its membership now and well into the future.
Basin Electric’s financial strength and flexibility is rooted in integrity, an important part of the electric cooperative business model.