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Wednesday, December 14, 2011

Nashua delays Pennichuck purchase for better bond rates

NASHUA – Some things are worth waiting for.

And that’s what city officials hope, by delaying for a month the purchase of Pennichuck Corp. and its water utility.

Aldermen on Tuesday approved extending, until Feb. 3, the merger agreement the city has with Pennichuck so that it can potentially get better bond rates for its $152 million purchase of the company.

The merger agreement – signed in November 2010 – was set to expire at year’s end, but Mayor Donnalee Lozeau successfully lobbied aldermen to give the city more time because of the bond market’s inactivity at the end of December, she said.

“No one’s interested in buying bonds during the holidays,” Lozeau said at the Board of Aldermen meeting.

When 2012 starts, the market will resume its usual level of activity, and city officials hope it can then secure favorable bond rates, Lozeau said. Financial experts have predicted as much, she said.

Alderman-at-Large Mark Cookson asked Lozeau why the board was asked to extend the merger agreement this late in the year.

Lozeau and Alderman-at-Large Brian McCarthy, the board president, said the state Public Utility Commission’s approval of Nashua’s purchase of Pennichuck came late in the year, Nov. 23, the day before Thanksgiving.

Since then, Lozeau and her staff had to negotiate the services of an underwriter and prepare for the floating of the bonds, she said. “That’s not something you try to compress before Dec. 31,” she said.

Lozeau said she wanted to wait to hire the underwriter and pay for other related services until the PUC gave its approval. Cookson ultimately voted against the delay; the rest of the board approved it.

Lozeau added that the Feb. 3 deadline was set for three days prior to a meeting of Pennichuck shareholders, “when they usually determine the payment of dividends. We want to make sure we avoid that.”

The city will pay $29 a share of Pennichuck stock. That’s $137.8 million for 4.7 million shares, $2.2 million for severance packages for outgoing Pennichuck executives, $5.3 million in legal and other fees, $5 million for a water rate stabilization fund and $1.8 million in bond issuance costs, making the total acquisition bill $152.1 million.

The bonds will be paid with Pennichuck revenue, in large part through water rates that will be set by regulators.

The city could potentially bond an additional $60 million in outstanding Pennichuck debt that it will assume upon purchase. Aldermen have approved the borrowing of as much as $220 million.

Since 2002, Nashua had been trying to purchase Pennichuck Corp. and its subsidiaries, including Pennichuck Water Works, to control the future of the region’s water supply.

Albert McKeon can be reached at 594-6528 or amckeon@nashuatelegraph.com. Also check out McKeon (@Telegraph_AMcK) on Twitter.