The third stranded cost securitization of the year, a $320 million fixed-rate offering from Jersey Central Power & Light, is officially in the market and, as expected, the sector is well behind its pace of a year ago. While more than $7 billion of rate-reduction bonds had priced by this time last year, the sector will have priced just $1.1 billion, following the completion of JCP&L, through five months of the year.
Spreads for the JCP&L, however, are well outside of the most recent transaction from Texas-based Central P&L, with indicative levels roughly 10 basis points cheap out on the curve. Despite the finite nature of the asset class - the rallying cry for supporters of the sector - the JCP&L structure is to blame for the cheap status of these bonds.
Moody's notes in the presale report for the deal that while there is no means for a voter initiative to remove the transition charge from consumers bills, the long amortization schedule increases "the potential for political activism against the charge" in the future. Additionally, the true-up mechanism inherent to this sector, which allows the transition charges to be adjusted to suit the ABS coupon payments, had a 30 day lag period - meaning it would take 60 days to increase the charges to consumers instead of the 30 seen with most other deals.
