August 18, 2005
CenterPoint Clears Legal Hurdle to $1.8 Billion Bond Sale
By Eileen O’Grady
CenterPoint Energy Inc., the second-largest power distributor in Texas, plans to go forward with a $1.8 billion bond sale after a court appeal by customers who opposed the plan was rejected.
The sale may take place by the end of this year, CenterPoint spokesman Floyd LeBlanc said today in a telephone interview. “Getting the bonds out quickly will allow us to take advantage of the low interest-rate environment,” he said. The sale still needs Securities and Exchange Commission holding company approval and a favorable private letter ruling by the Internal Revenue Service on the tax treatment of the proceeds to CenterPoint.
Proceeds will pay off higher-interest debt. Texas utility regulators approved the plan as part of $2.3 billion in compensation to Houston-based CenterPoint for a drop in the value of its plants caused by the opening of the state’s power market to competition. The $1.8 billion in bonds will be repaid through a charge added to customer bills, the company has said.
“We’re going to proceed with speed,” Texas utility commissioner Barry Smitherman said today at a commission meeting in Austin. “Short-term interest rates are rising.”
Travis County District Court Judge John Dietz in Austin earlier this month rejected the appeal that had delayed the bond sale, Smitherman said. Only one of the customers who opposed the financing plan remained party to the appeal, he said, and its deadline for challenging Dietz’s ruling will pass tomorrow.
Kenneth L. Wiseman, lawyer for the remaining opponent, the Houston Council for Health and Education, said his client won’t appeal the judge’s decision. Former opponents of the financing plan want CenterPoint to proceed with the bond sale to cut interest costs the company is passing on to customers, he said.
Recovery Was Disputed
Customers, including state agencies, had fought the plan after arguing that CenterPoint was being allowed an excessive cost recovery.
The Texas Public Utilities Commission this week rehired New York-based Saber Partners LLC as financial adviser on the bond sale, said W. Lane Lanford, the commission’s executive director. Saber assisted the agency in previous sales of $3 billion in bonds for CenterPoint and two other companies.
Smitherman said the financial adviser will work with CenterPoint to hire an underwriter to sell the bonds at the lowest interest rate possible. “Ultimately, we are responsible for ascertaining that we got the best price,” he said.
The commission earlier this year voted to put a cap of $1 million on fees paid to the financial adviser for the CenterPoint bond sale, said agency spokesman Terry Hadley.
Joseph Fichera, Saber’s chief executive, said selling the bonds by the end of this year is a “realistic” target. He said the PUC in its financing order guaranteed it will approve a surcharge on customers’ bills at whatever level is needed to make principal and interest payments on time.
Appeal for More Money
Judge Dietz hasn’t ruled on CenterPoint’s appeal for a larger total cost recovery than was granted by state regulators. The company had requested $3.7 billion, plus interest, or almost $4.4 billion. Regulators decided on $2.3 billion, including interest.
Shares of CenterPoint fell 3 cents to $13.10 in New York Stock Exchange composite trading. The stock still has climbed 16 percent this year.
CenterPoint’s 5 7/8 percent notes maturing in June 2008 rose 0.34 cent on the dollar to 102.85 cents on the dollar, according to Trace, the bond price reporting service of the NASD. The yield dropped to 4.76 percent from 4.89 percent.