The sub-prime mortgage mess has even affected American Electric Power, one of the nation's bluest blue-chip companies, the state Economic Development Authority learned.
American Electric routinely seeks tax-free bond issues to help finance big projects like the installation of scrubbers on its Amos power plant near St. Albans. The bonds are routinely issued under the state Economic Development Authority's name or the name of a county, although the authority or county merely acts as a conduit.
The state has helped in this way to finance more than $1 billion in environmental upgrades at American Electric's West Virginia plants in recent years.
On Thursday the state helped American Electric once again.
Bryar Nettles, American Electric's bond counsel, explained that five past bond issues totaling $290.3 million are structured so the interest rates they pay are periodically set by auction. The rates are usually very low because American Electric's debt typically receives the highest possible rating.
Ratings are assigned by independent rating agencies like Standard & Poor's, Moody's and Fitch. Among the factors the agencies consider when rating a bond is whether it is insured.
Companies that insured some of American Electric's bonds also insured some mortgage-backed securities that soured. That has raised concerns about whether the insurance companies could be on the hook for billions in sub-prime mortgage losses.
Ratings agencies have downgraded bonds backed by troubled insurance companies. As a result, investors have become skittish about any bonds insured by the troubled insurance companies.
Nettles said some recent auctions designed to set interest rates have failed. In cases where the interest rate can't be set at auction, "the rate has been going to the maximum, which has been as high as 10 to 15 percent, as opposed to the usual, which is around 2 percent," she said. "The interest cost the company is carrying has shot way up."
Like a homeowner with an adjustable rate mortgage that has skyrocketed, the power company sought relief Thursday by asking the authority to refund the five bonds with auction rates backed by troubled insurers.
Nettles asked the authority to use the proceeds to pay off the old bonds, and to issue new bonds. The new bonds will be backed by bank letters of credit -- not bond insurance companies -- so the problem won't arise again, she said.
The authority's board of directors unanimously approved the request.
The power company's brush with the nation's mortgage mess resulted in a $50,000 payday for the authority, which routinely charges a bond-issuing fee. The authority charged the power company $10,000 for each of the five bond issues authorized Thursday.
The sub-prime mortgage mess has even affected American Electric Power, one of the nation's bluest blue-chip companies, the state Economic Development Authority learned.
American Electric routinely seeks tax-free bond issues to help finance big projects like the installation of scrubbers on its Amos power plant near St. Albans. The bonds are routinely issued under the state Economic Development Authority's name or the name of a county, although the authority or county merely acts as a conduit.
The state has helped in this way to finance more than $1 billion in environmental upgrades at American Electric's West Virginia plants in recent years.
On Thursday the state helped American Electric once again.
Bryar Nettles, American Electric's bond counsel, explained that five past bond issues totaling $290.3 million are structured so the interest rates they pay are periodically set by auction. The rates are usually very low because American Electric's debt typically receives the highest possible rating.
Ratings are assigned by independent rating agencies like Standard & Poor's, Moody's and Fitch. Among the factors the agencies consider when rating a bond is whether it is insured.
Companies that insured some of American Electric's bonds also insured some mortgage-backed securities that soured. That has raised concerns about whether the insurance companies could be on the hook for billions in sub-prime mortgage losses.
Ratings agencies have downgraded bonds backed by troubled insurance companies. As a result, investors have become skittish about any bonds insured by the troubled insurance companies.
Nettles said some recent auctions designed to set interest rates have failed. In cases where the interest rate can't be set at auction, "the rate has been going to the maximum, which has been as high as 10 to 15 percent, as opposed to the usual, which is around 2 percent," she said. "The interest cost the company is carrying has shot way up."
Like a homeowner with an adjustable rate mortgage that has skyrocketed, the power company sought relief Thursday by asking the authority to refund the five bonds with auction rates backed by troubled insurers.
Nettles asked the authority to use the proceeds to pay off the old bonds, and to issue new bonds. The new bonds will be backed by bank letters of credit -- not bond insurance companies -- so the problem won't arise again, she said.
The authority's board of directors unanimously approved the request.
The power company's brush with the nation's mortgage mess resulted in a $50,000 payday for the authority, which routinely charges a bond-issuing fee. The authority charged the power company $10,000 for each of the five bond issues authorized Thursday.
In other action, the authority approved:
* A bond issue of up to $18 million to finance the state's purchase of the Greenbrooke Building, a five-story office building at 1124 Smith St.
* A bond issue of up to $16 million to buy the equipment Hino Motors is using to assemble trucks at its plant in Williamstown, Wood County. Hino will in turn lease the equipment from the state for 20 years. As a result, Hino will not pay property tax on the equipment. However, the company does pay taxes on its building.
Following the authority's approval, Hino issued a prepared statement by Yasuo Tanigawa, company president, expressing Hino's appreciation to the state for providing lease financing.
Also at the meeting, the authority gave preliminary approval to:
* Two loans totaling $2,295,000 for the acquisition of a Ravenswood plant near the William S. Ritchie Bridge that has been idle since November. The plant will convert scrap nylon and polypropylene into molding-grade plastic compounds.
One loan, for $1.6 million, is to 5S Limited Liability Co. to help finance acquisition of the plant. Another loan, for $675,000, is to Total Recylcing Solutions for acquisition of extrusion lines and other equipment.
* A $353,000 loan to Service Pump & Supply Co. Inc. of Huntington to help finance the renovation of an existing plant on a six-acre lot in Wayne County and to help purchase and install equipment.
The authority re-visited a $1,246,500 loan for Multicoat Products Inc. of Winfield that had previously received preliminary approval. The authority decided to split the loan into two parts.
It gave final approval to a $796,500 loan to Clerietta WV of Winfield and a $450,000 loan to Multicoat. Clerietta will use its loan to help finance construction of a building on a three-acre site in the Putnam Industrial Park at Fraziers Bottom. Clerietta will lease the building to Multicoat.
Multicoat will use its loan to finance the equipment that will be installed in Clerietta's building. Multicoat produces and distributes concrete restoration and waterproofing products for pools, spas, decks, walkways, parking garages.
The authority also gave final approval to:
* A $540,000 loan to BMR of Huntington to finance the purchase of an existing building in the Altizer section of Huntington that will be leased to CE Adkins & Sons Inc., a commercial and industrial painting and sandblasting company.
* A $360,000 loan to B & D Investments, 306 MacCorkle Ave. S.W., to help purchase and expand a building in the Spring Hill section of South Charleston. The authority said two commonly owned companies, Dynamic Graphics, an embroidery and silk screening business, and Custom Business Associates, a printing, office supplies and furniture business, will merge.
