December 13, 2005

CenterPoint Sells $1.8 Bln in AAA Bonds Backed by Ratepayers

By Mark Pittman, Published in Bloomberg News / BusinessWire

— CenterPoint Energy Inc., the Houston-based power distributor, sold $1.8 billion in bonds backed by a surcharge on electric bills to earn top credit ratings. The bonds were marketed to overseas investors at presentations in Tokyo, Beijing, Hong Kong, Singapore, Dublin and London, said Joseph Fichera, chief executive officer of New York-based Saber Partners, which advised the Texas Public Utility Commission on the sale. Interest rates were reduced on the bonds to the lowest since at least 2001 for a comparable transaction, according to a study done by the underwriters, Fichera said in an interview yesterday. “The broader the base, the lower the rate, the lower the cost to rate payers,” said Fichera, who also led negotiations with underwriters on the sale. Investors accepted a yield of 4.841 percent, or 4.75 basis points less in yield than the Libor swap index on $250 million of two-year debt. A basis point is 0.01 percentage point. The Libor swap index will be the yield on $368 million of five-year bonds, or 4.977 percent. The 7.5-year portion of the offering was sold to yield 5 basis points more than the index, or 5.089 percent for $252 million in bonds. The bonds were also sold in 10- and 13-year maturities. Lehman Brothers Holdings Inc., Credit Suisse Group and Royal Bank of Scotland led 11 banks in selling the debt. All were paid based on what they sold, not on a fixed percentage, Fichera said. The debt received top AAA ratings from Standard & Poor’s and Moody’s Investors Service.

Stranded Costs

In the last sale of similar securities, PG&E Energy Recovery Funding LLC sold $351 million of two-year bonds on Feb. 3 at 3 basis points under the swap index and a five-year maturity at 2 basis points more than the index. CenterPoint’s debt will be paid by customer surcharges to allow the company to recover its investment from before Texas deregulated its retail electric utility market in 2002. Under the state law that deregulated the industry, CenterPoint and other utilities in Texas such as American Electric Power Inc.’s Texas Central Co. and TNP Enterprise Inc.’s Texas New Mexico Power Co. can issue bonds backed by customer billings at a low interest rate to make up to make up for costs incurred in building power plants before the switch to deregulation. The expenses incurred are known as stranded costs. Under state law and CenterPoint’s financing order approved by the state utility commission in March, the financial adviser must certify that the underwriters sold the debt at the lowest interest rates on the day of the sale. “For the first time ever, investors from Asia to Ireland invested in this sector as well as major U.S. institutions,” said Barry Smitherman, a member of the Public Utility Commission, said in a statement yesterday. “U.S. agency buyers, insurance companies, corporate investors and even asset-backed investors also purchased the bonds with this unique and strong credit.” TXU Corp. and other Texas utilities already have sold $2.8 billion of the stranded-cost debt, which is backed by a state promise to set electric rates high enough to repay investors.

— With reporting by Darrell Preston in Dallas. Editor: Burgess.

To contact the reporter on this story: Mark Pittman in New York (1) (212) 617-3767 or mpittman@bloomberg.net.
To contact the editor responsible for this story: Robert Burgess at (1) (212) 617-2945 or bburgess@bloomberg.net.