June 12, 2013
FirstEnergy Tests Market Appetite for Utility ABS
By Nora Colomer
Pricing on Ohio’s FirstEnergy utility securitization is expected to come in on the tight end of guidance on the back of the historically low rates for benchmark U.S. Treasury and U.S. Agency debt.
The price guidance for the Goldman Sachs, Citigroup and Credit Agricole -led Ohio deal shows the 1.6-year, A-1 notes talked at 20 basis points over the eurodollar synthetic forward curve (EDSF). The 5-year, A-2 paper is being talked between 43 to 45 basis points over interpolated swaps; and the 13.69 year, A-3 tranche is being talked between 70 to 73 basis points.
Fitch Ratings, Moody’s Investors Service and Standard & Poor’s have all assigned triple-A ratings to the bonds.
Current credit spreads for corporate and utility bond offerings – the best comparable to this bond – are historically narrow or “tight,” according to Saber Partners, LLC a New York advisory firm that has participated in the structure, marketing and pricing of about $8 billion of similar offerings in 5 states.
According to a June 6, research Citigroup securitization research put fixed rate spreads for 2-year utility ABS at 15 basis points, five-year bonds at 30 basis points and 10-year bonds at 55 basis points.
In March 2012, American Electric Power’s (AEP) Texas Central Co. (TCC) closed an $800 million securitization backed by customer charges to recover costs related to the deregulation of Texas’ electric market. Its $310 million, approximately 10-year, triple-A tranche was priced at 70 basis points over swaps.