The Kansas Gas Service Securitization I, 2022-A is preparing to issue $336 million in securitized utility tariff bonds.
Similar to other utility cost recovery bonds, the deal will allow Kansas Gas Service to recover certain costs incurred after Winter Storm Uri in February 2021, according to Fitch Ratings. The utility tariff property, which includes the irrevocable right to impose, bill and collect a tariff from all natural gas customers of the utility's service territory in Kansas, will secure the issued notes.
The tariff is called the winter-event securitized cost recovery rider (WESCR), and will be allocated among seven classes of customers based on natural gas consumption during winter Storm Uri. Based on the structure of the tariff, the security of the notes will depend on the number of customers in the utility's service area.
The initial WESCR for residential customers is expected to represent about $5.08 per customer, or 5.2% of the average monthly residential customer bill, as of August 2022.
J.P. Morgan Securities is the lead underwriter for the deal, which will issue only one class of notes. They have an expected maturity of 10 years, with a final legal maturity of 12 years.
With just one class of issued notes, Kansas Gas Service's main form of credit enhancement is a true-up mechanism. On a semiannual basis, filings will adjust the WESCR to ensure that collections can sufficiently provide all scheduled payments of payments of principal and interest, pay fees and expenses, and replenish the capital subaccount, which is set at 0.50%.
Fitch expects to assign a 'AAA' rating to the A-1 certificates.
