Moody's Investors Service assigned a provisional rating of ‘Baa3’ to the €1 billion ($1.3 billion)  of bonds issued from Fondo de Titulización del Deficit del Sistema Electrico, a securitization vehicle set up to fund the tariff deficit in the Spanish power industry.

The securitization allows Spanish utility companies to make up shortfalls between the costs incurred to supply power and the regulated tariffs charged to the end users, Moody’s said.

The compensation is considered a fixed cost and a fixed amount is added to the electricity bills of the consumers in order to cover this deficit over the next 15 years. The Spanish electricity regulator, Comisión Nacional de Energia sets, administers and receives these amounts and passes them on to the specified utilities companies.

The issuer previously issued Series 1, Series 2, Series 3, Series 4, Series 5, Series 6, Series 7, Series 8, Series 9, series 10, Series 11, Series 12  and series 13 for a total amount  of EUR 15.662 billion. The issuer has acquired a portion of the tariff deficit receivables  generated in 2011 and refinanced receivables originally purchased from  the proceeds of Series 5. The newly acquired receivables amount to EUR 697.046 million and the refinanced series 5 receivables amount to EUR298.734 million.

Moody's assigned the ratings based on an evaluation of the guarantee from the government of Spain, which makes good on the interest and principal payments on the notes. The sovereign's current rating is ‘Baa3’/’P-3'. Failure to make the required payments could trigger an event of default if the management company considered this course of action in the best interest of the noteholders. 

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