October 13, 2005
Saber Partners to Advise on Nation’s First Hurricane Recovery Bond Program
Florida Program Could Become Model for Gulf Region
The State of Florida’s Public Service Commission has announced its intent to hire New York-based investment banking boutique Saber Partners to help develop and implement a program to finance the fiscal recovery of the state’s utilities hit by 2004 hurricane-related damages. The program is being developed as a result of statute passed by the Florida legislature and signed into law by Governor Jeb Bush earlier this year. Florida Power and Light (NYSE:FPL), Progress Energy (NYSE: PGN) and TECO Energy (NYSE: TE) are among the utilities eligible for the program.
The financing program allows a special charge to be placed on all electricity consumers’ bills, and for that charge to be automatically adjusted, at least annually through the government’s regulatory authority, to any level necessary to pay off the bonds on time. The bonds are not an obligation of the utility. Based on estimated damages from the Florida 2004 hurricane season, Florida’s initial issuance could be approximately $1.5 billion.
“This is an innovative solution to a difficult problem. In today’s market, apart from U.S. Treasuries, bonds like these that are backed by electricity ratepayers with a guarantee by the government’s regulatory authority are the most secure investment available.” said Joseph Fichera, CEO of Saber Partners. “These bonds are the highest quality, have no associated operating or event risk and should have lower interest rates than other types of utility financings. This lower cost to ratepayers, without any risk to the utility, is the key reason to issue them.”
Saber Partners also serves as the financial advisor to state utility commissions in Texas, New Jersey and Wisconsin – – – three of the four states who currently issue this type of bond. Since 2001, based on data from Securities Data Corporation, Mr. Fichera and Saber Partners have overseen the issuance of about $3 billion of the bonds in 5 separate transactions. According to industry observers, each transaction was the lowest cost financing compared to market benchmarks of any previous financing. The firm received a “deal of the year” award by Asset Securitization Report for managing a $500 million offering of utility tariff bonds by Dallas-based Oncor Electric Delivery Company.
Approximately $33 billion of similar bonds have been sold to date in nine other states for purposes not related with hurricane recovery. All of these bonds have received the top credit rating of triple-A from all nationally-recognized credit rating agencies. Progress Energy is the first utility that has announced its intention to apply to the Florida Commission, for permission to issue approximately $500 million in bonds. This offering is expected to occur during the first quarter of 2006.
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