The true-up mechanism structured in utility tariff ABS deals has helped deals with exposure to hurricane Sandy, weather the storm said Fitch Ratings.
Fitch said in a press release today that true-up mechanism provides the deals that it rates with enough credit support to maintain 'AAAsf' ratings through the damage and recovery from Hurricane Sandy.
The true-up mechanism is the primary credit enhancement in utility tariff ABS transactions that are structured to occur on a semi-annual or annual basis. During the true-up period, the tariff rates are adjusted up or down to account for fluctuations in consumption from the prior six or twelve months.
This adjustment helps to ensure adequate cash flow will be available to make principle payments in accordance with the amortization schedule. All utility tariff ABS transactions rated by Fitch have been structured with a true-up.
So even though some of the areas affected by hurricane Sandy are still without power, as utility systems are upgraded and repaired; a marginal increase in tariff rates during the next true-up period across the Fitch rated transactions would cover principal payment according to schedule.
Fitch's portfolio only has exposure to eight utility tariff ABS transactions issued by New Jersey utilities. As of the December 2012 payment date, the total outstanding balance of these transactions was $1.32 billion, which represents approximately 11% of the $12.10 billion Fitch-rated portfolio of 36 transactions.