The Public Service Co. of Oklahoma, which generates, transmits and distributes electricity services to 570,136 customers in the state plans to issue $696.9 million in fixed-rate bonds.
Oklahoma Development Financial Authority will issue the bonds, secured by ratepayer-backed bonds issued after an extreme weather event in February 2021, according to S&P Global Ratings.
The issuer will use the proceeds to reimburse the public service company for certain costs and expenses incurred after a major winter storm swept through much of the state in February 2021, according to S&P. The storm brought unprecedented low temperatures, drastic well and pipeline freeze-offs and limited natural gas supplies.
Oklahoma incurred approximately $675.2 million in natural gas and wholesale energy acquisition costs after the storm, prompting the state to adopt the "Regulated Utility Consumer Protection Act," which put the structure in place to issue the ratepayer-backed bonds.
A group of institutions including RBC Capital Markets, FHN Financial Capital Markets, Citigroup Global Markets and Morgan Stanley & Co., are underwriting the issuance. The trust will issue notes from two classes, and begin making payments to noteholders on a semiannual basis on June 2023, the rating agency said.
The rating agency expects to assign ratings of 'AAA' to the $244 million, A-1 and the $452.9 million, A-2 classes. The A-1 and A-2 classes have expected final maturity dates of December 2031 and June 2042, according to the rating agency.
Ratepayer securitizations are not new in the capital markets, but Oklahoma instituted a multi-step process that must be completed before the bonds can be issued, according to S&P. For instance, the Oklahoma Supreme Court customarily validates new forms of indebtedness or existing forms of indebtedness to finance certain projects. After the Oklahoma Supreme Court approves the bonds, then the Attorney General must also approve the bonds issuance.
All approvals were done by August 1, according to S&P.
Aside from such multi-layered public vetting, the transaction includes certain strengths. For one, the securitization property is irrevocable, cannot be bypassed and has no cap, as defined by legislation that put it into place.
The deal also includes a periodic adjustment mechanism that ensures timely repayment of principal and interest and ongoing financing costs related to the securitization bonds.
