Subject: term muni deals / prepays
mike mcdonald and laird dyer are looking at other creditworthy california shorts . some of munis ( roseville , palo alto ) are trying to combine the long term purchase with a muni bond issue in order to prepay for the power . the basic structure is that they borrow money from the tax - exempt market ( 6 % ) , give the proceeds to the power supplier ( who values the money at 7 % + + ) and they effectively get cheaper power .
we have done these deals in the past with nat gas . besides the margin on the commodity , we get cash in the door against an obligation to deliver . given our overall cash targets and ca length , i have made this a priority . mike mcdonald has been selling the concept during the past six months .
we are looking at submitting a notional offer later this week for roseville ( 50 mw - 100 mw , np - 15 , 8 - 10 years ) . the big valuation question relates to ena ' s bid for $ . generally , we have paid over our cost of funds for this cash because it does not show up as debt . in my discussions with joe , he thinks our $ bid should be based on alternative markets for off - balance sheet cash , which might mean libor plus 50 - 150 bp . this sounds reasonable until i think of the fact that i am being charged 15 % for balance sheet funds . the bid / offer for balance sheet cash should not be 7 % xl 5 % .
if i am using $ 100 mm of balance sheet exposure and i can bring in $ 100 mm of cash , shouldn ' t i be able to net out the difference ?
any thoughts ?
regards ,
chris