In the News: Recent Developments

Oct 21, 2005

Florida Utilities May Sell Hurricane Bonds in 1st-Qtr

By Matt Nesto and Dan Hart

Florida utilities likely will sell bonds in the first quarter to help pay for costs from hurricane damage last year, said Joseph Fichera, chief executive of New York-based Saber Partners, which is advising the state.

The bonds are “supported by a charge on everyone’s electric bill and backed by a government guarantee to always raise the charge to whatever level is necessary to repay the bonds,” he said today in an interview. He called the issues “the highest-security bonds apart from Treasuries.”

Florida utility regulators hired Saber to advise them on bonds that may be sold by units of FPL Group Inc. and Progress Energy Inc. to recoup costs of hurricane damage. Florida passed a law in June authorizing sales of such bonds to cut monthly surcharges that were added to customers’ bills to cover $1.5 billion of utility damage caused by the 2004 storms.

Utilities in Texas have sold similar bonds to cover costs related to opening power markets in the state to competition. Fichera said he expects Texas power companies to issue $2 billion more of such bonds and California utilities to sell $1 billion of them in the fourth quarter. Wisconsin and New Jersey power companies probably will issue about $500 million of bonds in the first quarter, he said.

Yield Premium

Such bonds maturing in 10 years have typically been priced to yield 45 basis points to 60 basis points more than U.S. Treasuries, he said. A basis point is 0.01 percentage point.

“They should trade more close, I think, to agency securities,” Fichera said, referring to the debt of government-chartered companies such as Fannie Mae and Freddie Mac.

Fichera said the Florida hurricane recovery bonds could set a precedent for utilities in the U.S. Gulf Coast region that suffered damages from Hurricanes Katrina and Rita. On a Sept. 6 call with analysts, New Orleans-based Entergy Corp.’s chief financial officer, Leo Denault, said so-called securitization was one of many options the company would explore. Louisiana’s legislature would have to approve the process first.

–With reporting by Eileen O’Grady in Houston. Editors: Kraus, B. Walsh, Holdcraft, Williams.

To contact the reporters on this story:
Matt Nesto in New York at (1) (212) 617-2573 or;
Dan Hart in Washington at (1) (202) 624-1870 or

To contact the editors responsible for this story:
Ed Caldwell at (1) (212) 617-2267 or;
Glenn Holdcraft at (1) (212) 617-8968 or

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