In the News: Recent Developments

July 17, 2003

Texas Public Utility Commission Chairman Applauds Increased Disclosure for Texas Transition Bond Investors

Contact: Joseph Fichera at 212-461-2370
New ‘Best Practice’ for Rate Reduction Bond Market

According to a press release today, CenterPoint Energy Transition Bond Company, LLC, a subsidiary of CenterPoint Energy, Inc.’s (NYSE: CNP) transmission and distribution subsidiary, CenterPoint Energy Houston Electric, LLC has undertaken to provide more and continued disclosure of financial and other performance information to investors concerning approximately $729 million of its outstanding AAA-rated transition bonds issued in October 2001.

The action was made in response to an initiative by Saber Partners, LLC, the Public Utility Commission of Texas (PUCT) financial advisor in connection with those transition bonds.

The Chairman of the PUCT, Rebecca Klein, said that this undertaking will make more credit information available on an ongoing basis to ensure easier investor market surveillance.

According to Chairman Klein, “Texas is setting a higher standard for ongoing disclosure as a new ‘best practice’ in this $29 billion national transition bond market because it’s the right thing to do. Investors want transparency to verify the quality of these securities, and I want to ensure the lowest possible cost to Texas customers.”

Transition bonds (or as they are also referred to in the asset-backed security (“ABS”) market, “rate reduction bonds” or “stranded cost bonds”) are a special form of ABS issued by a special purpose subsidiary of a sponsoring utility and generally authorized by special state legislation. A specific charge on electricity customer/ratepayer bills supports principal and interest payments on these bonds. The obligation to continue to impose this specific charge is anchored by a binding, irrevocable and non-appealable financing order issued by the PUCT. Texas transition bonds have consistently received the highest credit rating (triple-A) from each of the three major nationally recognized rating agencies: Moody’s, S&P and Fitch.

“Investors want information available at their fingertips to confirm or qualify the securities for investment. This allows them buy or sell the securities more quickly” said Joseph Fichera, CEO of Saber Partners. “At a time when the quality of information available to the market on some credit card backed bonds and similar securities is getting worse, the PUCT/CenterPoint efforts to create a new ‘best practice’ should enhance liquidity of CenterPoint’s outstanding transition bonds. Ratepayer costs on new CenterPoint issues, if any, could be lower as a result.”

According to CenterPoint’s announcement, its Transition Bond Company is undertaking to:

  1. Continue to file regular 10-K, 10-Q and 8-K reports with the Securities and Exchange Commission, even if it might otherwise be eligible to suspend such filings in accordance with SEC Form 15;
  2. Enhance its SEC disclosure by filing expanded reports including:
    1. Quarterly disclosure of payments to the Bond Indenture Trustee
    2. Quarterly statements disclosing whether, in all material respects, for each materially significant retail electric provider (REP), (i) each REP has been billed in compliance with the PUCT’s applicable Financing Order (Financing Order), (ii) each REP has made all payments in compliance with the requirements outlined in the Financing Order, and (iii) each REP satisfies the creditworthiness requirements of the Financing Order
    3. Quarterly reports of Collection Account and Subaccount balances
    4. Semi-annual statements updating scheduled versus actual payments of principal on the transition bonds
    5. Annual statements required under the Servicing Agreement regarding Transition Bond balances, the balances of the Collection Account and Subaccounts and certain projections of those balances
    6. Any change in the long-term or short-term credit ratings assigned by rating agencies to the affiliated servicer
    7. True-Up Filings (i.e., the PUCT procedure to adjust customer charges to meet bondholder payments) or web site links to those filings as they relate to proposed adjustments to customer charges to meet payments to holders of the transition bonds, and actions taken on those filings by the PUCT
    8. Any regulatory or legislative changes that could affect the transition bonds
  3. Seek to provide faster and easier access to information concerning the transition bonds through a web page. This will include a monthly statement of payments made to the Bond Indenture Trustee, additional information concerning the transition bonds, the Transition Bond Company’s SEC filings and the organizational structure of the Transition Bond Company and the affiliated servicer of transition bonds.
  4. Finally, representatives of the Transition Bond Company will meet periodically with the PUCT’s financial advisor and secondary market makers in the transition bonds to discuss transition bond liquidity and trading. Representatives of the Transition Bond Company also will conduct informational meetings or conference calls and will distribute information to ABS research analysts and corporate fixed income market participants.

“All these efforts are the first time an issuer of this type of bonds has committed to such action. It will ensure that the utility provides a similar support system for ABS investors as it does for investors in its traditional corporate securities,” observed Mr. Fichera.

“I am very pleased that CenterPoint has agreed to work with us and Saber Partners, LLC, our financial advisor on these matters, to undertake these efforts” said Ms. Klein.

Talks are continuing between Saber Partners and American Electric Power (NYSE: AEP) concerning the continuing disclosure of financial and other performance information in connection with approximately $765 million of outstanding AAA-rated transition bonds issued by American Electric Power’s CPL Transition Funding subsidiary in January 2002.

Saber Partners is a full-service financial advisor to both public sector and private sector entities, including the PUCT for securitization transactions. Saber Partners is located at 44 Wall Street, New York City. More information is located at the firm’s web site


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