Alectra Finance is in the market with a €1.197 billion ($1.62 billion) securitization of the 2005 Spanish electricity tariff deficit.
According to Moody's Investors Service, which rated the deal 'Aaa', the deal will securitize payments made by the Spanish Comision Nacional de Energia relating to the compensation entitlement that arose as a result of the funding by certain Spanish electricity utility companies of a deficit arising in the settlement of the costs of the regulated activities of the Spanish electricity sector in 2005.
Through a series of prior assignments, the issuer has acquired a portion of the 2005 tariff deficit in an amount equal to 40.02% of total recognized amount of 2005 tariff deficit.
BNP Paribas has also entered into a swap arrangement intended to hedge the mismatch in interest rates between the notional rate at which the 2005 Tariff Deficit will accrue interest and the interest payable on the Notes.
Moody's said that the swap could produce a mismatch between the outstanding notes balance and the outstanding tariff deficit balance.
The arrangement further exposes the structure to the credit risk that the swap counterparty might not be able to repay the outstanding notes in full if the outstanding tariff deficit has been reduced to zero before the final maturity date. This type of swap arrangement might not be easily replaced should the swap arrangement be terminated for any reason.
However, Moody's said that the swap counterparty is required to post collateral up to an amount necessary to mitigate the inherent principal mismatch between the then outstanding tariff deficit and the then outstanding notes.