Utility tariff bonds l.jpg
This presentation is the property of its rightful owner.
Sponsored Links
1 / 20

Utility Tariff Bonds PowerPoint PPT Presentation


  • 248 Views
  • Uploaded on
  • Presentation posted in: General

Utility Tariff Bonds. NARUC Accounting and Finance Meeting Sharon Bonelli, Managing Director October 10, 2007 Jackson Hole, WY. What is Securitization?. A form of debt financing that involves: Legally isolating a pool of financial assets

Download Presentation

Utility Tariff Bonds

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Utility tariff bonds l.jpg

Utility Tariff Bonds

NARUC Accounting and Finance Meeting

Sharon Bonelli, Managing Director

October 10, 2007

Jackson Hole, WY


What is securitization l.jpg

What is Securitization?

  • A form of debt financing that involves:

    • Legally isolating a pool of financial assets

    • Repackaging the asset cash flows into a liability structure

    • Creating securities that are backed by those assets

    • Providing for loss protection on those assets

    • Selling the securities to investors in the capital market

  • Common securitization asset classes: CMBS, RMBS, CDO, ABS

www.fitchratings.com


Utility tariff bonds defined l.jpg

Utility Tariff Bonds Defined

  • Bonds backed by “tariff property” which represents the right to collect a per kilowatt-hour tariff from a utility’s retail electric customers

  • Tariff property is established to fund a specific purpose, ie. costs to transition to a competitive market, environmental projects, etc.

  • The tariff property is a future flow (a “regulatory asset”), reflecting revenues from future customer billings

  • Bond structure incorporates conventional securitization features and additional features based on unique nature of the collateral

www.fitchratings.com


Conventional abs vs utility tariff bonds l.jpg

Conventional ABS vs. Utility Tariff Bonds

* Credit cards, auto loans, student loans, etc.

www.fitchratings.com


Transaction structure l.jpg

Transaction structure

www.fitchratings.com


Corporate bonds vs utility tariff bonds l.jpg

Corporate Bonds vs. Utility Tariff Bonds

www.fitchratings.com


Tariff bond structure adaptable to new applications l.jpg

Environmental projects

Monongahela Power Co./Potomac Edison Co. (2007)

Wisconsin legislation passed

Louisiana legislation passed

Hurricane recovery costs

Florida Power & Light Co. (2007)

Entergy Gulf States Inc. (2007)

Cleco (expected 2007)

Any utility purpose - Idaho legislation passed

Bankruptcy reorganization

Pacific Gas and Electric Co. (2005)

Tariff Bond Structure Adaptable to New Applications

www.fitchratings.com


Tariff bond market characteristics l.jpg

Tariff Bond Market Characteristics

  • Fitch has rated $39.8 billion of utility tariff bonds since 1995 (99% of issuance volume)

  • 40 transactions currently outstanding

  • Since late July, secondary bond spreads have been widening across the ABS market more than traditional high grade utility bond market, including tariff bonds

    • Will the historically wider cost differential between ‘AAA’ utility tariff bonds relative to on-balance sheet utility debt return in the near term?

www.fitchratings.com


Tariff bond spreads vs bbb corporate bonds l.jpg

Tariff Bond Spreads vs. ‘BBB+’ Corporate Bonds

www.fitchratings.com


Tariff bonds have stable performance to date l.jpg

Tariff Bonds Have Stable Performance to Date

  • Tariff bonds are performing as expected

  • ‘AAA’ affirmed on all 40 rated transactions in August 2007

  • Shortfalls mainly attributed to weather variance with true-ups effectively adjusting collections

  • Uninterrupted collections during servicer bankruptcies (NorthWestern, PG&E)

www.fitchratings.com


Abs tariff bond rating criteria six key areas of focus l.jpg

ABS Tariff Bond Rating Criteria – Six key areas of focus

  • Legal and regulatory framework

  • Transaction structure

  • Utility as servicer

  • Credit analysis

  • Self-generation and alternate technologies

  • Cash flow models and stress cases

www.fitchratings.com


Rating criteria legal regulatory framework l.jpg

Rating Criteria: Legal & Regulatory Framework

  • Tariff established as a property right by law and regulatory order

  • Tariff established as irrevocable; state nonimpairment pledge

  • Nonbypassability

  • Legal true sale & bankruptcy remote issuer

  • Successor servicer provisions

  • True-up: annual, interim, nonstandard

  • Third party energy providers

  • Perfected, first priority lien in transition property granted to indenture trustee

www.fitchratings.com


Rating criteria transaction structure l.jpg

Rating Criteria: Transaction Structure

  • Time-tranched notes

  • Principal amortization schedule

  • Credit enhancement

    • True-up

    • Capital subaccount

    • Reserve subaccount

    • Overcollateralization subaccount

www.fitchratings.com


Rating criteria servicing l.jpg

Rating Criteria: Servicing

  • Consumption forecasting

  • Customer credit evaluation process

  • Collections policies

  • Billing and remittance procedures

  • Commingling of funds

  • Successor servicer

www.fitchratings.com


Rating criteria credit analysis l.jpg

Rating Criteria: Credit Analysis

  • Customer base

    • Concentrations

    • Historical performance

  • Cyclical & seasonal patterns; consumption variance

  • Tariff level

  • Self generation & alternate technologies

  • Cash flow analysis

    • ‘AAA’ stress case

    • Break-the-Bond stress case

www.fitchratings.com


Tariff bond use impact on utility corporate credit l.jpg

Tariff Bond Use Impact on Utility Corporate Credit

www.fitchratings.com


Slide17 l.jpg

www.fitchratings.com


Adjustments to financial statements for tariff bonds l.jpg

Adjustments to Financial Statements for Tariff Bonds

  • Fitch’s power team adjusts financial statements to deconsolidate tariff bond debt related cash flows in its utility rating analysis, as follows:

    • Subtract interest and principal payments on tariff bonds from revenue line item

    • Add principal payment to depreciation and amortization line item

    • Add interest payment to interest expense line item

    • Subtract tariff bond debt from long term debt and current portion of long term debt on the balance sheet

www.fitchratings.com


Related research l.jpg

Related Research

  • “Rating Criteria for U.S. Utility Tariff Bonds”, August 30, 2007

  • “U.S. Utility Tariff Bonds: Adaptability of an Asset Class,” Aug. 30, 2007

www.fitchratings.com


  • Login