American Electric Power’s Appalachian Power priced its $380 million utility tariff rate relief bonds tight relative to priced guidance issued earlier this week.
Initial price talk on the class A-1 notes was 50 to 55 basis points; the A-2’s notes were talked at 75 to 80 basis points.
The West Virginia utility bond securitization, dubbed Appalachian Consumer Rate Relief Funding LLC, is structured with a $217.5 million, five-year bond that priced at 54 basis points over swaps and a $162.8 million, 12-year bond that priced at 70 basis points over swaps, according to a person familiar with the deal.
Moody’s Investor Service assigned both classes of notes a preliminary Aaa’ rating.
According to pricing document filed with the US Securities and Exchange Commission on Wednesday the notes priced with an interest rate coupon of 2.00% on the short-dated triple-A notes and 3.77% rate on the long-dated triple-A notes.
Morgan Stanley, jointly with RBS Securities are the lead underwriters on the deal. The financial advisor is Public Resources Advisory Group (PRAG).
Wells Fargo’s 5-yr credit cards are currently in the low 40s to swaps and on a “generic basis from our ABS spread report, the spread differential was plus 13 basis points last week between rate reduction bonds and cards,” said John McElravey, director and head of consumer ABS Research at the bank.
The deal makes a move back to pricing utility bonds relative to credit card ABS. In July Ohio Power Company, a wholly-owned subsidiary of AEP, priced a $267.4 million deal called Ohio Phase-In-Recovery Funding LLC.
The Aaa’-rated, 2.25-year notes priced at a spread of 40 basis points over the interpolated swaps curve and the Aaa’-rated, 5.08-year notes priced at 52 basis points over swaps.
PRAG, also the financial advisor on the AEP deal used as a benchmark auto loans and dealer floorplan ABS, two asset classes that are even more subject to consumer risk than credit card structures.
In June, FirstEnergy priced a $445 million deal. The Aaa’-rated, 1.6-year notes priced at 25 basis points over swaps; the Aaa’-rated, 2.5-year notes priced at 40 basis points; and the Aaa’-rated 13.69-year notes priced at 70 basis points. First Southwest, the financial advisor on the First Energy deal, also priced the bonds relative to prime auto and student loan ABS.
Saber Partners’ chief executive, Joseph Fichera, said that the Appalachian pricing regained much of the lost ground on rate reduction bond pricing which were trading well below credit cards since the credit crisis.
“When new RRB offerings in 2010 and 2012 priced more than 10-20 basis points higher than credit cards on the long end the whole market was disrupted,” he said. “Getting flat to cards in the Appalachian pricing recovered a lot of loss ground but the upside potential for even tighter RRBs spreads remains for future issues."
The next utility bond slated to come to market is in December for the Long Island Power Authority’s $1.5 billion securitization.