Ohio Power Company, a wholly-owned subsidiary of American Electric Power Company (AEP), priced its $267.4 million utility receivables securitization deal called Ohio Phase-In-Recovery Funding LLC.
Moody’s Investors Service rated the deal. The A-1, ‘Aaa’-rated, 2.25 year notes priced at a spread of 40 basis points over Interpolated Swaps with a coupon rate of .958%.
The A-2, ‘Aaa’-rated, 5.08-year notes priced at 58 basis points with a coupon rate of 2.049%, according to a pricing term sheet.
The deal comes just weeks after First Energy priced its securitization deal, First Energy PIRB Special Purpose Trust 2013. The deal was sponsored by three First Energy subsidiaries: Cleveland Electric Illuminating Company, Ohio Edison Company and the Toledo Edison Company.
The three utilities formed an SPV to issue separate notes and those notes were sold to the First Energy trust which issued certificates and these certificates were offered to investors.
By comparison, the First Energy deal priced its Moody’s rated, ‘Aaa’, class A-1 notes with a weighted average life of 1.6 year at 25 basis points with a coupon rate of .679%. The ‘Aaa’-rated, class A-2 notes with a weighted average life of 2.5-years priced at 40 basis points with a coupon rate of 1.726%; and the A-3, ‘Aaa’-rated notes with a 13.69-year weighted average life priced at 70 basis point with a coupon of 3.45%.
Rate-reduction bonds, as they are sometimes called, are backed by the future collections of special charges applied to electric utility bills, which is based on power usage and can vary from year to year based on weather or economic conditions.
To protect bondholders from fluctuations in collection, the deals are structured with a “true-up” mechanism. The true-up adjusts tariff charges to existing and future retail electric customers to ensure timely payment of the bonds.
Utility receivables are also known as stranded-asset securitizations or storm-recovery bonds.
Pricing spreads for the bonds have been relatively wide for deals issued in the post-crisis period when compared to other consumer ABS deal, despite the minimal credit risk associated with the structure.
Analysts at Wells Fargo this week in a report on the sector said that these bonds offer good relative value when compared to other asset classes in consumer ABS.
But for utility issuers and their customers, wider spreads mean higher relative value costs. “The widening spread to cards is really an issue,” said one market source familiar with the deals. “Utility securitizations have had no credit events whatsoever, so they should be at or thru the cards index for certain.”
