CFC Assists SMECO with Successful Private Placement

CFC recently helped Southern Maryland Electric Cooperative (SMECO), a distribution system headquartered in Hughesville, Maryland, complete a $135 million private placement transaction, acting as financial adviser to SMECO while Mizuho Securities USA served as the placement agent. 

In a Dutch auction process set up by Mizuho, 12 investors—all insurance companies—plus CFC took a portion of the $135 million at 4 percent interest for 30 years. The offering was more than six times oversubscribed.

“We are very pleased with the market’s response,” says SMECO President and CEO Joe Slater. “Because it was our initial offering, we weren’t sure what to expect. We appreciate CFC’s introduction to the Mizuho team. They were a great adviser and assisted us throughout the process.”

Placement Required Education Effort Prior to Launch

SMECO interviewed four potential private placement agents and ultimately chose Mizuho. “Not only was the company well qualified, but it had an ongoing relationship with CFC, giving us comfort in their ability to handle our initial transaction,” Slater adds.

Mizuho spoke to more than 20 investors about the transaction prior to the launch and organized a meeting and conference call between SMECO staff and investors in its New York offices. “While CFC knows our business, many of the investors did not understand the cooperative model,” Slater explains. “So we had to educate them on topics that included renewable portfolio standards, rate regulation and structure, retail choice and our power supply/hedging strategy.”

The capital raised will be used by SMECO to refinance existing debt and fund projects to better serve more than 160,000 meters across 1,150 square miles of southern Maryland.

SMECO Snags Best Possible Pricing

“Interest rates in the capital markets are still low, so the timing was good,” notes SMECO Chief Financial Officer Sonja Cox. “The insurance companies that ultimately invested gave us their highest credit rating, an NAIC 1, which translated into the best pricing we could possibly achieve.”

She adds: “It was definitely a learning process. We worked with CFC’s Member Services and Treasury and Finance staff to determine if a private placement or public offering would better suit our financing needs. Using the capital markets for funding was the next logical step for us.”

CFC Senior Vice President and CFO J. Andrew Don sees the SMECO arrangement as a great example of the diversity of financial services CFC provides. “It’s an additional option for members to consider.”