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July 18, 2003

Texas Utility Heightens Disclosures

CenterPoint Energy is hoping to improve the pricing of its utility-fee securitizations by giving investors more information about the deals than has been the industry practice.

The Houston utility will start by providing more performance information in its quarterly and annual SEC filings for $729 million of triple-A-rated securities that it issued in October 2001. The company, formerly known as Reliant Energy, is also setting up a Web site where investors will be able to view performance updates and monthly collection reports for the receivables backing the deal.

CenterPoint hopes the increased transparency will drive down spreads on secondary-market trades of those bonds, which should result in improved pricing for as much as $6 billion of new asset-backed securities that it plans to sell next year. The planned deals would also follow the heightened disclosure practices.

There’s no word on how much the bonds’ pricing should improve as a result of the change. Five-year utility-fee securities are currently changing hands at 13 bp over swaps. Rebecca Klein, chairperson of the Texas Public Utility Commission, said she plans to encourage other utilities to follow suit for their utility-fee securitizations. That’s because the reduced funding costs should be passed on to consumers, since the bonds are backed by special fees tacked onto their electricity bills.

The comission’s New York advisor, Saber Partners, is already talking to American Electric Power about incorporating similar disclosures for $765 million of bonds that it sold in January 2002. Saber Partners’ chief executive, Joe Fichera, said he came up with the idea after big-name issuers in other sectors, including Citibank and Sallie Mae, made their deals more transparent. He believes the move will improve the deal’s liquidity.

Although utility-fee bonds are among the asset-backed market’s strongest performers, market players have often complained that the securities don’t price consistently – and can be illiquid – because they don’t receive enough information about the deals. Some also became worried about the sector after California’s electricity crisis last year. Several utility companies have taken advantage of SEC rules that allow them to stop disclosing certain information when the pool of bondholders falls below 300.

Asset-Backed Alert (ISSN: 1520-3700), Copyright 2003, is published weekly by Harrison Scott Publications Inc.


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