August 7, 2009
Utility Issues Face Marketing Hurdle
A growing number of utility-fee securitizations are entering the planning stages, only to encounter a potential blockage: it’s unclear who would structure and distribute the offerings. As Citibank, Credit Suisse, J.P. Morgan, Morgan Stanley, RBS and other banks have scaled back their securitization-underwriting units amid the global financial crisis, many have eliminated teams that handled more-exotic deals, including those from energy companies. At the same time, electricity carriers and public utility commissions have increasingly been initiating plans to sell asset-backed bonds to pay for storm-damage repairs, infrastructure improvements and environmental upgrades – on top of issues already in the works. Now, with the prospects of shopping those deals through traditional structured-finance desks dimming, some industry players are suggesting that issuers initiate talks with corporate-bond bankers whose groups have remained more intact.
That’s a possibility, albeit a slight one, for CenterPoint Energy. The Houston company has been looking at a fourth-quarter offering of up to $663 million that would pay for repairs to facilities damaged by hurricanes Gustav and Ike in 2008. Goldman Sachs has been serving as an advisor on the undertaking, but the role doesn’t guarantee an underwriting assignment. There’s also word of disagreements among the various parties involved about who would handle distribution.
CenterPoint apparently plans to select an underwriter later in the process, likely leaning toward shops that could handle its offering through their securitization desks. But with future deals, investors can expect to hear an increasing number of pitches from corporate-bond professionals.
That said, securitization should remain strongly in play from a structural standpoint – with the pullback by underwriters from the area contrasting with what promises to be a strong flow of deals. Indeed, with billions of dollars of funding needed for various electrical projects in the next few years, issuers and the government entities overseeing them are viewing asset-backed sales as an attractive way to hold down costs.
Other issuers with deals in development include New Orleans-based Entergy, which hopes to fund an estimated $700 million of storm-recovery costs in Texas. It will discuss details of the plan at upcoming Texas Public Utility Commission hearings.
A month ago, Allegheny Power of Greensburg, Pa., began seeking approval from the West Virginia Public Service Commission to finance environmental improvements in the state through a $105 million securitization. The commission has yet to discuss the proposal.
Meanwhile, attendees at a July 19-22 meeting of the National Association of Regulatory Utility Commissioners in Seattle said they saw more interest in utility-fee securitizations than in past years. “It was a major issue on their agenda,” said David Boonin of the National Regulatory Research Institute. He and Saber Partners chief executive Joseph Fichera, S&P managing director Richard Cortright and Southern California Edison treasurer Robert Boada sat on a panel about securitization that ran past its allotted time due to a heavy volume of questions. Part of the interest stemmed from a July 8 report from S&P that pointed toward strong deal performance amid the global financial crisis. “This is the only security that has an unblemished record,” Fichera said. Utility-fee bonds are backed by special charges added to customers’ electricity bills. There were $1.6 billion of such issues completed in the U.S. in 2008, mostly from CenterPoint and Entergy. No utility-fee deals have priced so far in 2009, according to Asset-Backed Alert’s ABS Database.