City Of Hercules May Default On Its Electric System Revenue Bonds If Tender Fails

HERCULES, Calif., March 18, 2014 /PRNewswire/ -- On March 5, 2014 the City of Hercules launched a tender offer ("Tender Offer") for electric utility revenue bonds used to fund improvements to the City-owned and operated Hercules Municipal Utility ("HMU").  The Tender Offer relates to two series of bonds issued in 2010 by the Hercules Financing Authority (the "HMU Bonds").  If the Tender Offer is successful, the City will sell the HMU assets to Pacific Gas and Electric Company ("PG&E") for $9.5 million and use the proceeds to pay off the HMU Bonds.  If the tender is unsuccessful, it is likely the Series 2010 Refunding bonds will default as early as August 1, 2014.  The HMU Bonds are currently rated CCC+ by S&P.

The HMU started electric service in 2003.  It has never made a profit, and does not generate enough revenues to cover its operating expenses and debt service for the HMU Bonds.  At the time the HMU Bonds were issued, the City entered into a "Cooperation Agreement" whereby it agreed to advance monies from its general fund to cover shortfalls.  To date, debt service has been paid via a combination of City subsidies and bond proceeds initially intended to finance improvements.  However, the City does not have sufficient funds to continue subsidizing the HMU nor does it intend to advance general fund monies to cover any shortfalls.  Once the bond proceeds from the 2010 issues are spent, the bonds from that series will default.

In January 2013, PG&E submitted a bid to purchase the HMU assets for $9.5 million, subject to the City retiring the HMU Bonds.  The PG&E offer was accepted and the City and PG&E entered into an Asset Purchase Agreement for PG&E to purchase the HMU.  The Asset Purchase Agreement was later approved by the California Public Utilities Commission.  If the Tender Offer is successful, it will allow the City to pay off the HMU Bonds and its other HMU-related obligations before handing over the HMU assets to PG&E.  If the tender is unsuccessful, it is likely that the sale to PG&E will not be completed. The tender period runs to March 28, 2014 and information on the Tender Offer is available from:

BONDHOLDER COMMUNICATIONS GROUP, LLC
Attention: Carla Henderson
30 Broad Street, 46^th Floor
New York, NY 10004
Call Toll Free: (888) 385-BOND or (888) 385-2663
Tel: (212) 809-2663
Fax: (212) 437-9827
E-mail: [email protected]
Website: www.bondcom.com/Hercules

This is not a solicitation to tender securities.  The Tender Offer document contains a complete description of the tender offer and must be reviewed prior to any decision by holders to tender their securities. 

You can obtain additional copies of this document and other materials at www.bondcom.com/Hercules.  Finally, your Financial Representative should be able to answer most questions concerning this Tender Offer.

Contact: Nickie Mastay, Finance Director
Phone: (510) 799-8222
Email: [email protected] 

SOURCE City of Hercules