As deregulation continues to spawn stranded-cost deals, Northeast Utilities, through its New England-based subsidiaries, is likely to be a significant issuer in the stranded-cost sector going forward, according to market sources.
Via advisor Salomon Smith Barney, Northeast subsidiary Western Massachusetts Electric Co. filed last week with the Massachusetts Department of Telecommunications and Energy for regulatory approval to go forward with a stranded-cost securitization.
"We've been talking about filing now for probably a couple of years, and this is just the act of doing it," said Mark Englander, project manager at Northeast.
The company intends to file a shelf registration with the Securities and Exchange Commission within a month or two for a $261 million deal.
"That's what we filed for," Englander said. "Whether or not that amount will be approved, we don't know. The DTE has to go through it, and obviously they have jurisdiction to change it."
Similarly, Northeast's Connecticut-based subsidiary, Connecticut Light and Power, plans to file with the DTE for a $1 billion to $1.5 billion stranded-cost transaction. The company intends to file within a month or two.
The final amount of the CLP transaction will depend on whether or not Northeast is able to receive approval on negotiations with independent power providers to buyout the existing contracts.
Both CLP and WMEC will change from full energy providers to distribution companies that will contract for power, Englander said.
Somewhere down the line, Public Service Company of New Hampshire, also a subsidiary of Northeast, will hit the stranded-cost market, pending a settlement with the state. Securitization is just one issue of the settlement.
Though Northeast is working with Salomon Smith Barney, there's no telling which bank will ultimately be the lead manager on any of the deals, as stranded-cost securitizations face regulatory issues that influence the selection of underwriters.
Namely, each state involved hires its own advisor. Both Massachusetts and Connecticut have hired Lehman Brothers, while New Hampshire is working with Bear, Stearns & Co.
Englander said the deals will likely be co-managed.
To date, Boston Edison Company is the only utility to close a stranded-cost deal out of Massachusetts.
The $720 million transaction, which was managed by Lehman brothers, was structured in five A-class tranches, with average lives ranging from one to seven years.
Northeast's deals will be similar in structure to Boston Edison's deal, Englander said.
Currently in the market PECO Energy Co. is set to close its $1 billion deal this week, a follow-up to the issuer's $4 billion deal in the first quarter of last year. Salomon has been lead manager on both deals.
"It's definitely the only deal they'll do this year," said a source at Salomon. "They can re-finance some of the bonds they issued last year starting next year, but this is really the only thing that they'll be doing this year."
PECO's deal is structured in four parts: a 1.11-year, $110 million A1-class, a 2.08-year, $140 million A2-class, an 8.75-year, $399 million A3-class, and a 9.34-year, $351 million A4-class.
All notes were rated triple-A by Moody's Investors Service, Standard & Poor's Ratings Co. and Fitch IBCA.x