The District of Columbia is looking to issue a $400 million securitization to finance its portion of costs related to moving high voltage power lines underground, a person familiar with the deal said.

The government of the capital will partner with utility provider Pepco to finance the conversion of approximately 60 overhead constructed feeders to underground construction during the next seven years.

In a departure from traditional utility bond structures, the issuer of the securitization bond will be Washington and not the utility provider. The bond structure will nonetheless benefit from “true-ups”, which allows for consumer charges to be adjusted up or down in order to amend any shortfalls or surpluses experienced by the trust.

The D.C. government said in a May 2014 presentation that customer impact would range from $1.50 to $3.25 in year seven for the average residential customer.

Another difference between this deal and other utility bonds is that there will be no SPV set up. An SPV is a bankruptcy-remote entity established for the sole purpose of issuing debt securities. Often the SPV isolates the bondholders from event risk associated with the originator and servicer. But as the District of Columbia can’t file bankruptcy, “there is need to set up an SPV,” said the source familiar with the deal.

Pepco plans to finance its share of the costs, estimated to be $500 million, through debt and equity structures. 

The securitization bond proceeds will be used for design and construction of the conduit system and the services of a financial advisor to the Public Service Commission.

Saber Partners is acting as the financial advisor to the consumer.

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