August 27, 2004
Power Utility Plans To Issue $125 Million In Bonds
Published in Corporate Financing Week
Public Service Electric and Gas (PSEG) plans to issue $125 million in transition bonds in October or November. Joseph Fichera, ceo of Saber Partners, which is advising the state of New Jersey in the deal, said the group of underwriters has not yet been decided, but that it will be a small group. “The decision will be made jointly by the company and by the state of New Jersey,” he said.
The company is currently working with the state to obtain a financing order–a document that will guarantee that the bonds will be given a triple-A rating, and ensure that they will be paid. The order would allow the state to raise electricity rates when necessary to service the bonds, according to Fichera.
PSEG did its first securitization associated with New Jersey’s transition into an unregulated market in January of 2001, issuing $2.525 billion in bonds. Lehman Brothers led the sale. Since then, there have been close to $125 million in additional costs associated with deregulation. “The state law on basic generation services permits us to securitize those costs as well, and doing so will result in savings for the rate-payers, and that’s why we’re pursuing it,” said Morton Plawner, PSEG’s treasurer.
The week before last, the company’s utility issued $250 million in 5% 10-year mortgage bonds. The proceeds were used to replace existing mortgage bonds that had a 7% coupon, and were set to mature in 2024.
The state of New Jersey, like a number of different states, is transitioning from a regulated energy market to an unregulated one. State governments are assisting utilities in obtaining cheap financing to pay for restructuring costs, and at the same time lower the cost of energy. TXU Corp. and the state of Texas sold $790 million in transition bonds in May (CFW, 6/20) and another similar transaction is set to take place in Vermont. Though the deal is currently in the early stages of negotiation between the state and the power producers, Fichera said he expects the amount to be close to $150 million, and that it will likely take place in the first quarter.