February 4, 2008
CenterPoint Sells $488.5 Million of Bonds Backed by Ratepayers
By Michael Quint
A unit of CenterPoint Energy, a Houston-based utility, sold $488.5 million of top-rated bonds backed by a surcharge on electric bills to pay for its costs of converting to a less-regulated market since 1999.
The ratepayer bonds were a cheaper financing option than if the company had used its own borrowing and shareholder capital, according to filings with Texas utility regulators. Bonds of CenterPoint Houston, a CenterPoint Energy subsidiary, are rated Baa2, the second-lowest investment grade, by Moody’s Investors Service and BBB+, one level higher, by Standard & Poor’s.
“The cost to the average homeowner is about 37 cents a month, or five cents less than without the sale,” said Terry Hadley, a spokesman for the Texas Public Utility Commission. Savings will amount to about $109 million over the next 12 years, according to a statement from the commission on Jan. 31, the day of the sale.
Texas legislation passed in 1999 allows power companies to recover costs resulting from the opening of their market to competition. Collections of the surcharge from electric bills and a state law requiring electric rates to be set high enough to ensure repayment gave the CenterPoint bonds the highest ratings.
About $40 billion of similar bonds have sold in Texas and 18 other states since 1994. The bonds issued by CenterPoint Energy Transition Bond Co. had the lowest rates ever for ratepayer bonds in Texas, according to the commission statement.
CenterPoint got interest rates of 4.19 percent for $300 million of five-year bonds and 5.23 percent for $188 million in 10-year bonds. The utility’s funding cost using its own debt and equity would have been about 8.06 percent rate, the commission statement said. The sale has handled by Citigroup Inc. and Credit Suisse Group.
Joseph Fichera, chief executive officer at Saber Partners, a New York-based financial adviser to many ratepayer bond sales, though not CenterPoint’s, said that “the savings from selling ratepayer bonds were large, though they were less than they could have been given the safety of the bonds.”
The credit quality of ratepayer bonds, because of the requirement that electric rates stay high enough to pay the debt, is closer to that of U.S. agencies than to top-rated corporate or asset-back bonds, he said.
The 5.23 percent yield on CenterPoint’s 10-year bonds was about 1.57 percentage points higher than Treasury notes with the same maturity. A unit of Florida Power & Light sold 10-year bonds in May at 5.26 percent, or 0.51 percentage point more than Treasury notes.
Since the Florida sale, the gap between 10-year bond yields of the Federal National Mortgage Association, a U.S. agency, and comparable Treasury notes has widened 0.19 percentage point to 0.56 percent.