Water-Fee Bonds Enter Pipeline

February 4, 2011

Plans are coming together for a securitization that would pay for a water-treatment plant in California.

California American Water, the water utility behind the project, cleared a major hurdle when it won permission from the California Public Utilities Commission in December to sell bonds backed by special fees added to customers’ monthly bills. It needs to raise $300 million to construct the facility, which would convert seawater for use in the public water supply on California’s Monterey Peninsula.

Monterey County, which is a partner in the undertaking, is reviewing proposals from underwriters interested in overseeing its share of the securitization process. The securities, likely unrated, are scheduled to be floated in May – with the plant set for completion in 2015.

The securitization is the first utility-fee deal in the pipeline for 2011. Four such transactions totaling $1.4 billion were completed in 2010, according to Asset-Backed Alert’s ABS database. Joseph Fichera, chief executive of New York advisory firm Saber Partners, said utility-fee deals often result in a lower cost of funding than other alternatives. The deals require approval in each state where the underlying payments are charged, however, and so far fewer than 20 states have given their endorsement. Most deals in recent years have raised money to pay for storm-damage repairs or environmental
improvements.