In the News: Recent Developments
 


October 11, 2007

Saber Partners Launches Nationwide Campaign To Highlight Safe, Secure, Low-Cost “Ratepayer Green Bonds”.

Contact: Susanne Walker, PR404.474.8271 swalker@scwpr.com

Standard & Poor’s Forecasts Growth in Use of this “Powerful Tool”.

“Ratepayer Green Bonds” are a cost-effective, tax-efficient solution for states and utilities to fund billions of dollars in environmental costs and to promote renewable energy.

New York, N.Y., (October 11, 2007) – Saber Partners, LLC, a leading Wall Street financial advisory firm, is launching a nationwide campaign to bring attention to low-cost “Ratepayer Green Bonds” – a new type of bond structure that will facilitate vital, though sometimes costly, climate change and other environmental program initiatives. The bonds reduce ratepayer costs by relying on the security of regulated utility charges. Saber Partners advised West Virginia regulators and electric utilities in the nation’s first successful sale of these bonds in April 2007. These “Ratepayer Green Bonds” are projected to save West Virginia ratepayers about $130 million in environmental program costs related to a single coal-fired plant. The transaction’s success demonstrated that the unique safety and security of this type of bond could help to reduce significantly the ratepayer burden of funding the billions of dollars in environmental compliance costs and purchases of renewable energy throughout the country. (See “Ratepayer Green Bonds” at http://saberpartners.com/oped/lowering-costs.pdf)

Standard & Poor’s (“S&P”) Cite Pressures to Grow the Market

In a new research report released on October 4, 2007, S&P, a preeminent and nationally recognized bond rating agency, agreed with this assessment and predicted that “various climate change scenarios and the prospects of increased environmental regulation may provide the impetus for future growth” for the “powerful tool” of utility fee based bonds. In its report, S&P cited the West Virginia transaction as the successful precedent for using utility fee based bonds to address environmental costs. Utilities are expected to spend about $50 billion between 2007 and 2025 to comply with certain environmental regulations, according to the U.S. Environmental Protection Agency. Moreover, greenhouse gas initiatives, system benefit charges and renewable or alternative energy costs could substantially increase the amount of capital required to protect the environment.

In its nationwide campaign, Saber Partners, the principal expert on utility consumer bond financing, will help educate Wall Street, interest groups, legislators, regulators, consumer groups and corporations about the benefits of this kind of financing to provide a “win-win” green strategy. The firm aims to encourage the passage of special enabling legislation – based on protecting the interests of all stakeholders – that will make the use of these bonds possible in more states. Saber Partners does not underwrite or trade the securities. Saber provides independent, senior-level analysis and conflict free advice for chief executive officers, regulators, elected officials, chief financial officers, treasurers and others.

Credit Market Upheaval over Risks Demonstrates Benefits of “Ratepayer Green Bonds”

The current debt crisis, characterized by massive downgrades and Wall Street structuring issues has allowed lenders to demand higher interest rates for certain bonds, including those classified as “securitizations”. However, “Ratepayer Green Bonds” and some other utility fee based bonds have different structural features and have indeed been described by issuers in U.S. Securities and Exchange Commission’s public filings as “eliminating for all practical purposes and circumstances any credit risk associated with the [related] bonds.”

“Ratepayer Green Bonds” have the benefits of a protected stream of cash similar to a securitization, but are without the complexities and risks associated with securitizations. None have ever been downgraded or even been considered for a downgrading. They have performed as described. The bonds:

  • Are not supported by a pool of receivables, but are supported by a set of protected cash flows from a broad and diverse consumer base that serves to guarantee payment of the bonds;
  • Are enabled by specific state laws and are backed by the state government’s regulatory authority, which has jurisdiction over electricity rates;
  • Do not involve the credit of the state or any new taxes.

Because of their extraordinary safety and security, “Ratepayer Green Bonds” can command the lowest interest rates available to utilities, municipalities and states in today’s market to finance critical environmental projects, programs and purchases of renewable and clean energy. With lower interest rates and the ability to replace highly expensive equity, these utility fee based bonds can help protect against large increases in electric bills. Reducing “rate shock” should smooth the progress of vital public environmental initiatives.

Saber’s West Virginia Precedent Creates Template; S&P’s “Powerful Tool” Requires Careful Consideration

The Public Service Commission of West Virginia and two units (Monongahela Power and Potomac Edison) of incumbent electric utility, Allegheny Energy, Inc., closely collaborated to complete the first “Ratepayer Green Bond” offering that sold in April 2007. Saber Partners served as the chief advisor to the commission as it oversaw the structure, marketing and pricing of the financing, which received the lowest credit spreads from investors ever for a similar bond. (See Saber Partners, LLC Completes Nation’s First Environmental Control Bond Issue)

That SEC-registered offering created a template that can be adopted by utilities and generation owners, under the supervision of regulators across the country. To move forward, regulators, environmental advocates, consumer representatives and utilities need to work together on special enabling legislation that will authorize these types of bonds tailored to the specific requirements of each state and the market.

Michael Noel, the former chief financial officer of Southern California Edison Company, one of the largest utilities in the country, and now senior managing director and senior advisor to Saber Partners, said:

“These bonds benefit customers and shareholders. They need to be among the financing strategies for important environmental projects. The pressure on customer gas and electric rates is high and is expected to gradually worsen. It is important that these types of bonds be considered to mitigate increases in rates, rather than to simply accept them as inevitable.”

Joseph Fichera, senior managing director and chief executive officer at Saber Partners, said:

“The power of Wall Street can be harnessed to benefit the environment. Utility fee bonds – ‘Ratepayer Green Bonds’ – are a new low-cost solution for environmental compliance. They can assist investors looking for safe, solid investments, and responsible companies trying to protect their customers, balance sheets and shareholders.”

About Saber Partners

Since the firm’s creation in August 2000, Saber Partners has set itself apart as an innovator in the realm of banking and finance. The firm is known for achieving significant results on behalf of a roster of clients that includes the West Virginia, Wisconsin and Florida Public Service Commissions, the United States Securities and Exchange Commission, ExxonMobil Corporation, the Office of the Governor of the State of California during the height of the California energy crisis, the Dormitory Authority of the State of New York, the Public Utility Commission of Texas and for other corporations interested in financings, mergers or acquisitions. Since 2000, the firm has advised in five states on a total of $8 billion in financings secured by utility fees. As a small, independent firm, Saber Partners does not have the inherent tension inevitably created when a larger, more diverse firm that is also pursuing underwritings (from its present and future clients) acts as an advisor either to an issuer or regulator.


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