In the News: Recent Developments

July 6, 2005

Increasing Investor Demand for Utility Ratepayer-Backed Bonds Prompted by Bond Market Credit Concerns – Special Topic at Industry Meeting in September

(New York, New York) Investors are increasingly bidding for utility ratepayer-backed bonds to provide superior safety, stability and diversification for their portfolios. Described as a “super-corporate” security with an airtight government guarantee, according to one mid-west insurance company portfolio manager, and amid unprecedented credit concerns in the bond market, investors managing corporate and ABS portfolios are turning to this $33 billion market. Utility ratepayer-backed bonds have also been referred to as rate reduction, stranded cost, utility fee, hurricane recovery, environmental trust and transition bonds.

Within the last 6 months, more state legislatures (such as West Virginia (Allegheny Energy NYSE:AYE), Florida (FPL NYSE:FPL and Progress Energy NYSE:PGN) and Idaho (Avista NYSE:AVI, Idaho Power) have approved the issuance of this new breed of bonds — one with a special government guarantee of regulatory action to prevent any credit problems — to protect constituents from higher energy bills. This followed Wisconsin’s (Wisconsin Energy Corp. NYSE: WEC) adoption of similar legislation in 2004. A special panel of industry experts, led by Saber Partners, LLC CEO Joseph Fichera will discuss these and other developments at the upcoming ABS EAST Conference in September.

Negative Credit Events Throughout Bond Market Except in Ratepayer-Backed Bonds

High-grade bond portfolios have been hurt from more than a half a trillion dollars of AAA/AA corporate bonds that have been downgraded since 2000 in almost all sectors. Nomura Securities recently reported that the only class of securities to have zero credit events has been utility ratepayer-backed bonds – neither utility first mortgage bonds, nor drug companies, nor credit cards, nor student loan bonds can boast of such a record.

Secondary Market Pricing Improves Significantly – – – On Top of Cards

Now, for the first time, major secondary market asset-backed bond dealers are quoting 5-year and longer utility ratepayer-backed bonds at levels the same as top tier credit card bonds, traditionally considered the “gold standard” of the ABS market. This means that new utility ratepayer-backed bond issues, even those not from Texas (CenterPoint Energy NYSE:CNP) who always have traded on top of credit cards as new issues and below secondary levels, are likely to price through this barrier. In fact, according to some observers, competition for ratepayer-backed bonds could drive yields closer in line with the bond’s inherent relative credit value and through Federal agencies or in line with high-grade corporate bonds like Johnson & Johnson.

New Legislative Developments To Spur Supply

Four new state legislatures have authorized this type of financing for their utilities, and more are likely to follow. What are the risks and rewards for this re-emerging asset class? IMN Conferences has assembled an exceptional top-tier array of issuers, bankers, regulators and lawyers to discuss the subject at the ABS EAST conference in Boca Raton in September.

Conference Agenda

September 16 2005


  • How Should Relative Value Comparisons Be Made In Deciding To Upgrade A Portfolio To Include Ratepayer-Backed Bonds? What Are The Credit Considerations?
  • When Will Ratepayer-Backed Bonds Surpass Credit Cards As The ABS Market Benchmark For Highest Safety, Security And Value?
  • Is There An Appropriate Tiering Among These Types Of Bonds? Are These Super-Corporate Securities And Not Just ABS?
  • What Are The UK Basel Accord Risk Weighting Advantages Of Ratepayer-Backed Bonds?
  • How Will Legislative Developments In Wisconsin (Wisconsin, Florida, West Virginia, Idaho Expanding The Use Of Proceeds (i.e., No Longer Limited To Electricity Deregulation) Affect The Growth Of The Market?
  • Will The Tax Law Limit Ratepayer-Backed Bonds To Recovery Of “Stranded Costs” In Connection With Electricity Deregulation?
  • What Is The Outlook For New Issue Supply, Liquidity And Credit?

Session Facilitator:

Joseph S. Fichera, Chief Executive Officer, SABER PARTNERS, LLC


  • Jay Kim, Director, BARCLAYS CAPITAL
  • Wayne Olson, Managing Director, CREDIT SUISSE FIRST BOSTON
  • Jay H. Eisbruck, Team Managing Director, MOODY’S INVESTORS SERVICE
  • Fred Grygiel, Former Chief Economist, NEW JERSEY BOARD OF PUBLIC UTILITIES
  • Dean E. Criddle, Partner-Tax, ORRICK, HERRINGTON & SUTCLIFFE LLP

For more information: Contact Sabine Ohler at 212-461-2370, , or visit

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