Fitch Ratings has released its outlook on utility tariff securitizations. The rating agency stated that it expects strong asset performance from the sector.
According to the rating agency, all Fitch-rated offerings are paying according to their amortization schedule thus far.
The firm expects true-ups and subaccount withdrawals to stay stable, with performance highly correlated to the U.S. economy's health. If the economic recovery process is slower than anticipated, then utility tariff ABS performance can be negatively impacted. As a result of the effectiveness of the true-up mechanism, subaccounts, and legal
framework, no negative actions are expected in 2012.
Fitch has also assigned a stable rating outlook on the asset class. Fitch has reviewed the performance through December 2011 of all 37 tariff bond deals, with total initial principal worth $21.9 billion of debt, all rated ‘AAAsf’ by the rating agency. All Fitch-rated bonds in the asset class are performing as originally expected, with total remaining outstanding principle of $11.2 billion, the rating agency stated.
Additonally, Fitch said that overall, the deals’ structural and regulatory mechanisms have worked as intended. The application of the true-up mechanism has offset revenue dips in some offerings that was caused by unusual weather conditions and decreased energy consumption. The rating agency expects the frequency of true-ups and subaccount withdrawals in 2012 to stay stable from last year's levels
Analysts from the rating agency think that consumption might fall below forecast with residential
energy efficiency programs mature and recessionary impacts persist, which can result in dips in commercial and industrial loads and prolonged collection timing curves.
However, no negative rating actions are expected for this year, according to Fitch, and the prospect of widespread downgrades in the utility segment is still unlikely.
The rating agency's view on the business climate for U.S. investor-owned electric utilities and utility parent firms is anticipated to stay favorable in 2012 because of good capital markets access, low interest rates, and low natural gas prices.
Considering the modest economic growth forecast for 2012, company credit profiles and ratings are should remain stable, Fitch said. But, in the event of a double-dip recession, weather normalized sales would be negatively impacted. In this happens, the ratings of companies with Negative Outlooks or exposure to wholesale power markets can be downgraded.
In a few years, the rating agency said that maturing energy efficiency programs and lighting efficiency will probably dampen electricity demand.