Transaction Details

Kentucky Municipal Energy Agency

Municipal

Municipal Advisor

Powering a New Era of Reliable, Flexible Energy for Kentucky Communities

Background
In February 2025, Baird served as municipal advisor to the Kentucky Municipal Energy Agency (KYMEA) on its inaugural public bond sale, issuing $121,980,000 in Power System Revenue Bonds to finance the Energy Center I (ECI) Project, a new 75 MW natural gas-fired reciprocating internal combustion engine (RICE) facility in Madisonville, Kentucky. Marking KYMEA’s debut as a public market issuer, this transaction was designed to meet the evolving energy needs of ten Kentucky municipal utilities and their communities, providing scalability for future growth and setting a precedent for resilient municipal energy solutions.

The Series 2025 Bonds provide funding for the acquisition, construction, and equipping of the ECI facility, along with capitalized interest, a debt service reserve, and issuance costs. The facility is designed to deliver flexible, reliable, and cost-effective capacity to KYMEA’s members, supporting both base and peaking needs and enabling greater integration of renewable resources such as solar power.

Opportunity
KYMEA’s first-ever public bond sale introduced new, investment-grade municipal credit to the market, representing an important opportunity to establish the agency’s presence and credibility with investors. As the agency prepared to launch the ECI Project, its leadership sought a financing structure that reflected KYMEA’s governance model and provided long-term value and flexibility for its members.

The financing structure needed to balance affordability and adaptability while providing a framework that could evolve with future energy needs. This goal led to the design of a hybrid “project participant” structure, combining elements of project-based and all-requirements joint action to accommodate both current and future members of the agency.

Implementation
To structure the inaugural bond issue, KYMEA and its financing partners developed a Generation Participants (GP) group within KYMEA’s membership. Participating GP members receive access to a rate stabilization fund, established through the waterfall of funds described in the trust indenture, which can be used to offset power costs or redeem debt early. Members that did not participate—or that joined KYMEA after issuance—benefit from stable, low-cost power from the ECI facility but may withdraw from the agency with five years’ notice and without ongoing debt obligations after that period. GP members remain obligated to support the bonds for their duration, and any savings from future refinancings accrue only to them.

The bond sale took place on February 12, 2025, amid market volatility following the release of a CPI report indicating higher-than-expected inflation. Baird, as municipal advisor, assisted KYMEA with strategic planning and coordination leading up to pricing. The agency elected to insure the largest maturity with Assured Guaranty to expand the investor base and manage borrowing costs. The underwriter purchased the bonds and marketed them to investors under challenging market conditions.

Results & Impact
The transaction generated $134.3 million in total orders, with $111.2 million in filled orders from institutional investors. KYMEA’s first public offering achieved A/A3 ratings from Fitch and Moody’s and attracted participation from 15 unique institutional investors, reflecting the market’s recognition of KYMEA’s credit quality and the ECI Project’s long-term value to member communities.

By incorporating investor feedback and adjusting structure during the order period, KYMEA achieved its target financing objectives while maintaining efficiency and transparency throughout the process.

The ECI Project will help KYMEA’s members—representing many small and rural communities—deliver affordable, reliable, and sustainable energy to more than 48,000 customers across Kentucky, supporting local economic growth and energy resilience.