September 12, 2005
N.J. Utility Bond Offering Achieves Record Low Pricing Spreads
Small Deal Takes Big Step
(New York, NYSE: PEG) $102.7 million of Transition Bonds were sold Friday, September 9, at the lowest credit spreads ever for utility transition bonds. Some of the credit spreads were the lowest on record for any new fixed rate issue offered in the asset backed securities market. Since 1997 there have been 31 bond offerings ($33.5 billion) by U.S. utilities backed by special charges on their customers’ bills, commonly called transition bonds or utility tariff bonds. These special charges, unlike other utility bonds, are supported by a government guarantee to raise the charge as necessary – without a limit – to ensure timely repayment. Friday’s offering by a special purpose subsidiary of Public Service Electric & Gas Company (NYSE: PEG) was sold pursuant to an irrevocable financing order from the New Jersey Board of Public Utilities. All major credit agencies rated the bonds triple-A.
The bonds were sold in four tranches of approximately equal size at record-low credit spreads to market benchmarks. The 2-year tranche was sold at minus 5 basis points (-5 bps) under the benchmark LIBOR swap-based index, the 5-year tranche at minus 1 basis point (-1 bps) under the index, the 7.5-year tranche at 4 basis points (+4bps) over the index, and the 9.2-year tranche at 7 basis points (+7bps) over the index.
According to data published by ABS Net, IFR and other sources, the 5-year tranche also represents the first time since May 1998 in the asset-backed securities market that a 5-year fixed rate maturity bond offering priced below LIBOR interest rates. The 2-year and 9-year tranches were also the lowest spread on record for such a fixed rate maturity. The 7-year tranche was the best on record since 1997.
Saber Partners served as financial advisor to the New Jersey Board of Public Utilities, representing ratepayers’ interests. Saber also oversaw the structure, marketing and pricing of the bonds and all negotiations with the underwriters, from their initial selection to final pricing. Credit Suisse First Boston, Barclays Capital, and MR Beal were the underwriters.
The record low spreads are particularly noteworthy because investors usually demand much higher spreads for a small, and therefore less liquid, transaction. For example, the last transition bond offering structured and marketed for a New Jersey utility (prior to Saber’s involvement) was a $46.5 million 8.6-year tranche at a spread of +30 bps to the benchmark. Moreover, the PEG transaction beat a comparable, but more liquid, offering Massachusetts in which Saber was not the advisor. In March, 2005, Boston Edison (NYSE: BEC) priced a $144 million tranche of 7.4 years at +10 bps to the benchmark.
For each and every offering in which Saber Partners has been the advisor, new issue pricing spreads have set record low levels. This has helped lead the market to higher valuations and lower ratepayer costs.
“Markets can be made not just followed,” said Joseph Fichera, CEO of Saber Partners. “These results are from a focused team effort that begins with a belief among the issuer, underwriter and advisor that ‘good enough’ just isn’t.”
Saber Partners is a full-service financial advisor to both public sector and private sector entities. Saber Partners is located at 44 Wall Street, New York City. More information is located at the firm’s Web site www.saberpartners.com.
For more information:
Contact Joseph Fichera at 212-461-2370
