Duke Energy Progress is preparing to sell $177.3 million in storm recovery bonds secured by related charges on South Carolina retail electricity consumers' bills.
The transaction, called Duke Energy Progress South Carolina Storm Funding, 2024-A, is preparing to issue just one class of notes, according to Moody's Investors Service.
The single, A1 notes will get a Aaa rating from Moody's, meanwhile the ASR database notes that S&P Global Ratings assigns AAA ratings to the notes. The notes will price against Treasurys, with spreads expected to fall between 85 and 90 basis points over the benchmark. Moody's says the notes have a legal final maturity date of March 1, 2046.
Duke Energy will sell to the trust the storm recovery property, which consists of the rights and interests to charge consumers for recovery costs related to damages from a series of serious storms, including Winter storms Pax and Ulysses; Hurricanes Matthew, Florence, Michael, Dorian and Izzy; and Tropical Storm Jasper.
Although A financing legislation empowers the act, and a mandatory and uncapped true up mechanism adjusts the storm recovery charges, on a semi-annual basis. The sponsor provides electricity services to about 187,000 customers across 13 counties in northeastern South Carolina, according to Moody's. Further, the financing order allows Duke Energy Progress, which is also the servicer on the deal, to make interim adjustments to the true-up charges, to ensure timely bond repayments, Moody's said.
These characteristics provide a seemingly rock solid foundation of credit support, but Moody's did note several potential credit challenges. The deal's cashflow could be compromised if the financing order that powers the recovery charge encounters a state or federal legislative or regulatory challenge. The storm recovery charge rate is relatively low, at 4.9% of the total monthly bill as of April 1, according to Moody's, but any number of factors could cause a shortfall in the collections, the rating agency said. These include inaccurate consumption forecasts, energy self-generation or unanticipated consumer delinquencies or defaults.
