CenterPoint Energy's 2001 rate-reduction bond deal will likely not be affected by power outages to nearly half of the company's customers due to Hurricane Rita. Rating agency officials say the disaster likely falls within the credit enhancement cushions structured into the deal, and, at most, a slight adjustment to the deal's true-up mechanism will be required. "Overall I do not think it is a credit concern," said Weili Chen director in structured finance ratings at Standard & Poor's.
According to data from Houston-based CenterPoint, 700,000 of the company's 1.9 million energy customers lost power due to Rita, however, nearly half of those customers had their power restored within 24 hours of the hurricanes landfall. Over the course of last week, CenterPoint worked to restore power to its customers, with numbers gradually declining until roughly 10,000 remained without power as of last Thursday.
The $748 million deal has $628 million left to pay down over the next five years, split between three tranches.
According to Fitch Ratings, the structure allows CenterPoint to make annual true-up adjustments, every November. The company can also apply for interim true-ups, not more than every six months, if after the application of collections, the actual principal balance of bonds outstanding at the next payment date is more than 5% above or below the expected principal balance on the expected amortization schedule.
Chen said the deal has a cash reserve account funded by revenue collections as well as from the company, but it also makes use of a soft amortization, allowing the company to pay less principal than scheduled to bondholders for any particular period, and catch up with the principal payments in its next payment cycle. Chen believes any losses from the outages will fall well within the protections built into the deal. Chen added that a non-routine true-up purely for credit reasons is unlikely, however, the company is always free to do a non-routine true-up to stay on the amortization schedule and keep investors happy.
The filing deadline for the company's November true-up is mid-October. CenterPoint Treasurer Marc Kilbride said since most of the customers in the company's service area did not lose power for an extended period of time, and the annual true-up is a month away, the company is "not looking for an interim true-up." Kilbride would not comment on whether November's true-up would be significantly different because of the outages.
Ellen Lapson, in Fitch Rating's Global Power group, said the stress placed on the deal by the power outages would fall within the parameters structured into the deal. "There has been experience in this asset class with stresses that I think were more profound than this," said Lapson, noting that there has never been a default in the stranded-cost sector. Lapson did say, however, that if the company has to use either the regular or the interim true-up mechanisms to get back onto its amortization schedule, there would likely be no impact to investors.
CenterPoint is expected to issue a $1.89 billion stranded cost deal later this year or in early 2006, after clearing several regulatory hurdles over the summer (see ASR 8/22/05).
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