CoServ Securitization 2022, a ratepayer asset-securitization deal, is preparing to raise $460 million from the capital markets to repay expenses incurred after CoServ Electric's power supplier declared bankruptcy amid the 2021 winter storm that crippled parts of Texas.
Goldman Sachs & Co. is the transaction's lead underwriter, according to FitchRatings, which intends to assign ratings to two tranches of fixed-rate notes. CoServ Securitization's collateral is essentially the trust's right to collect a tariff from Denton County Electric Cooperative's retail electricity customers, Fitch said. CoServ Securitization's capital structure consists of two tranches of notes, with the A-1 and A-2 notes reaching legal final maturity in August 2038 and February 2050, respectively.
During the course of last year's winter storm, CoServ Electric's power supplier, Brazos Electric Power Cooperative, incurred $2.21 billion in expenses and was forced to declare bankruptcy. The bankruptcy resolution determined amounts owed by parties associated with Brazos, and the current securitization will be used to cover CoServ Electric's share, which actually comes to about $450.9 million, according to Fitch.
Securitized charges (SC) payments from all customers in the utility's service territory generate the cash flow that supports the utility tariff bonds, according to Fitch. As of Dec. 31, 2021, CoServ Electric provided service to the north end of the Dallas-Fort Worth metropolitan area, representing some 650,000 people.
Several contractual features help ensure the timely repayment of notes, according to the rating agency. For one, the legislation that enables the financing order is irrevocable and not subject to reduction, impairment or adjustment. The state has made a pledge to uphold the value of the financing order, and the deal includes a true-up mechanism allows the securitized charge to be adjusted at least semiannually. It can be adjusted more frequently, if necessary, to correct for any discrepancies such as over- or under-collections.
Fitch expects to assign 'AAA' ratings to both tranches of notes.
