In the News: Recent Developments

November 7, 2013

Appalachian Power prices USD 380.3m utility ABS; tranches in line with, tight of talk

By Marissa Capodanno

West Virginia American Electric Power affiliate Appalachian Power Company priced the two tranches of its USD 380.3m ABS in line with and tight of talk, according to a person briefed, a syndicate source and SEC filings.

AEPWV 2013-1’s USD 215.8m 5-year AAAs priced to yield 2.007% at a spread of I-Swaps+ 54bps, in line with earlier price talk in the I-Swaps+ 50bps­55bps area, according to the syndicate source. The USD 164.5m 12.24-year AAAs came in at a 3.7722% yield and priced at I-Swaps+ 70bps, 5bps tight of talk.

The transaction’s pricing underscores improving relative value in the rate reduction bond space, according to Joseph Fichera, CEO at Saber Partners.

Spreads on rate reduction bonds were 13bps wider than credit card ABS as of 1 November, according to data from Wells Fargo analysts, who have called RRBs some of the best relative value in consumer ABS for the risk taken.

Ohio’s American Electric Power affiliate, Ohio Power Company, and FirstEnergy, also in Ohio, issued back-to-back RRBs in June and July of this year, as reported (see article, 23 July). “If you look at the FirstEnergy deal, that was +70bps and credit cards were marked at +45bps,” for a difference of +35bps, according to Fichera, citing Citigroup research.

A handful of power utilities across the country ­ including New York’s Long Island Power Authority ­ are in various stages of the approval process for RRBs with their state utility regulators (see article, 30 October).

A spokeswoman at AEP declined to comment. Officials and a spokesperson at structurer Morgan Stanley and Royal Bank of Scotland declined to comment or did not return calls.

AEPWV 2013-1 | USD 380.30m
Class Currency Size WAL MDY S&P EXP Bench SPREAD CPN PX YLD
A-1 USD 215.80 5.00y Aaa AAA 2/2023 Swaps 54bps 2.01000% 99.99983 2.007%
A-2 USD 164.50 12.24y Aaa AAA 8/2028 Swaps 70bps 3.77000% 99.98964 3.7722%

** Denotes class not offered Leads: Morgan Stanley, RBS Securities Co’s: n/a Pricing: 11/7/2013 Settles: 11/15/2013

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