The Public Utility Commission of Texas approved CenterPoint Energy Inc.'s request to securitize up to $1.8 billion in stranded cost ABS last week, clearing the way for a deal which the issuer hopes will occur as soon as possible. Some hurdles do remain, however, as the issuer has yet to officially select an underwriter for the transaction.

In a release issued following the Commission's approval, CenterPoint said it hoped to complete its offering by mid-year. But Floyd LeBlanc, vice president of communications at CenterPoint, indicated that the company wanted to waste as little time as possible to complete its offering. "The transaction has been approved by the [Commission] and depending on market conditions, we hope to work with our financial advisor to take advantage of the current low interest rate environment."

LeBlanc added that given current interest rates, the $1.8 billion deal would lead to an additional $2.60 charge per consumer, assuming the Commission's benchmark of 1,000 megawatt hours of electricity usage per month.

Before selecting an underwriter, the Commission has to contract an independent third-party advisor to act as a liaison between itself, CenterPoint and the underwriters on the offering. Commission spokesman Terry Hadley confirmed that RFPs have been sent to prospective advisors, and one had been selected, although no contract had been signed.

In a conference call regarding the subject, Commissioner Barry Smitherman asked Commission Executive Director Lane Lanford: [Do] we have some sort of verbal, working understanding [with the prospective advisor]? To which Lanford replied: "Well, we have somebody that's working for free at this point."

The only known third-party advisor on stranded cost ABS is Saber Partners, which has advised on TXU Electric's 2004 offering (see ASR 5/31/04) and was named advisor to Wisconsin Electric Power Co.' planned offering (see ASR 10/18/04).

Saber CEO Joseph Fichera would not confirm any involvement in the CenterPoint transaction, saying that he "can't comment on a process in process." The Commission's Hadley would only say "a contract has not been signed," regarding the selection of an advisor.

CenterPoint initially asked to recoup $3.7 billion, an amount reduced to $2.3 billion by the Commission, a decision that CenterPoint is appealing and hopes to overturn. Should the Commission's decision not be overturned on appeal, "CenterPoint would have to make adjustments," said LeBlanc, adding that he believes the decision will be overturned, and additional securitization allowed, "because we have followed the letter and the spirit of the law to the letter."

Of the allowed $2.3 billion $1.8 billion will be securitized and the remainder will be made up in a Competition Transition Charge assessed to local electricity distributors, which purchase product from CenterPoint and deliver to commercial and consumer users.

Although the sector sees sporadic issuance at best, spreads for stranded cost ABS are among the tightest in the fixed-income world and each pricing prices inside the one before it. Last month's $675 million offering from Boston Edison Co., the latest of two stranded cost deals to price this year, saw its one-year, 2.5-year and 7.4-year classes price at all-time tight spreads to EDSF and swaps, respectively (see ASR 2/28/05).

To date stranded cost ABS has seen $2.56 billion in supply, according to data maintained by ASR. By contrast credit card ABS has seen roughly $2.9 billion thus far in 2005.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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