Kentucky Power, a subsidiary of American Electric Power, is preparing to launch its first utility recovery bonds transaction, selling $477.7 million to investors, backed by recovery charges billed to existing and future retail utility customers.
Jefferies and Co. is the deal's manager, and Kentucky Power Cost Recovery is slated to close on June 12, according to Asset Securitization Report's deal database. The transaction will issue one class of notes. While the coupon was not clear at press time, the notes are rated Aaa and have a legal final maturity date of Sept. 1, 2047, according to Moody's Ratings.
Kentucky has a securitization law that, along with the Kentucky Public Service Commission's financing order, allows power companies to issue asset-backed securities (ABS). The Kentucky commonwealth and its agencies, also agree to a non-impairment pledge designed to protect the value of the recovery charges.
Essentially those state agencies, including the Kentucky Public Service Commission, will not allow the value of the recovery charges to be reduced or hinder their billing, collection and remittance, Moody's said.
The charges would apply to about 163,000 retail customers, according to Moody's.
The deal also includes a mechanism that authorizes a mandatory adjustment at least semi-annually, to preserve collections and cash flow to the deal, according to Moody's.
While the recovery charges are governed by strong agreements to keep cash flowing into the deal, Moody's noted, potential challenges could emerge. As of December 2024, non-residential customers accounted for about 65.1% of Kentucky Power electric usage, which accounted for about 56.4% of Kentucky Power's revenue.
This poses a potentially negative credit outlook for the deal because energy consumption by this customer type is tied closely to the business cycle and potentially more volatile.
Also, the recovery charge represents about 6.6% of the total bill that a customer would receive, based on 1,000 kWh usage, as of April 1, 2025. That is higher than the average of 5%.
