The issuer formerly known as Oncor Electric made its long-awaited return to the ABS market late last week, announcing a $790 stranded cost ABS expected to price this week. After the transaction was renamed to TXU Electric Delivery Transition Bond 2004-1 from the initial Oncor Electric Delivery Transition Bond 2004-1, investors saw one of the more structurally distinctive offerings in some time.
The name change, partially blamed for the longer-than-anticipated ramp- up period, was reportedly part of a larger plan of new TXU CEO C. John Wilder to rebrand TXU's numerous subsidiaries under one umbrella.
In a quest to attract crossover buyers from the unsecured corporate market domestically and overseas, Oncor will reportedly consist primarily of fixed-rate notes, offered over both swaps for three-year notes and Treasurys for 10-year notes with the three-year class possibly pricing as a floater.
Joint lead managers Merrill Lynch and Wachovia Securities had Internet and Bloomberg-based roadshows slated for last Friday through Monday, with the books tentatively scheduled to open Tuesday, according to information disseminated by the underwriters. Launch is scheduled for Wednesday, with pricing anticipated Thursday. Settlement is tentatively set for early June.
As expected, the official dissemination of the updated preliminary term sheet contained many of the initiatives spearheaded by financial advisor Saber Partners, including a "plain English" explanation of factors mitigating credit risk, relaxed risk weighting for certain foreign investors and duration fears. The document even includes a Q&A section covering some of the more basic concerns of potential investors unfamiliar with stranded cost ABS.
The controversial credit risk statement, the reporting of which was also cited as partial cause for the delay, made it into the filing (see ASR 4/26/2004). Believed to be a first-time occurrence in an asset-backed term sheet, TXU states that the true-up mechanism imbedded in the transaction "effectively eliminate[s], for all practical purposes and circumstances, any credit risk" with the offering.
Due to this statement of credit risk, or lack thereof, some European investors will be able to use a reduced risk weighting, which Saber had reportedly been pushing for throughout the year. U.S. investors are afforded a 20% risk weighting for triple- and double-A rated securities.
"If held by financial institutions subject to regulation in countries that have adopted the 1988 International Convergence of Capital Measurement and Capital Standards of the Basel Committee on Banking Supervision (Basel I), the series 2004-1 bonds might attract the same risk weighting as claims on or claims guaranteed by non-central government bodies within those countries, which are accorded a 20% risk weighting," TXU states in its filing, posted with the Securities and Exchange Commission after the market close last Wednesday.
Addressing duration, TXU outlines possible electricity usage and rate payment scenarios and calculates the impact on average life of the bonds. TXU theorizes that a "5% decline in consumption (1.8 standard deviations from mean) versus forecasted levels results in no change in weighted average life" of the transaction.
Furthermore, a "15% decline in consumption (5.1 standard deviations from mean) versus forecasted levels results in 0.8-1.3 months change in weighted average life."
The true-up will be used, according to the filing, "only after a 5% variance from the expected amortization schedule."
Q&A imbedded in
TXU 2004-1 term sheet
Q Can customers avoid paying Transition Charges if they switch electricity providers?
Q Are there any circumstances, or any reason, in which the True-up Mechanism would not be applied to customer bills, e.g., economic recession, temporary power shortages, blackouts, bankruptcy of the parent company?
Q Could the Financing Order be rescinded or altered or the PUCT fail to act to implement the True-up mechanism?
Source: Securities and Exchange Commission
Copyright 2004 Thomson Media Inc. All Rights Reserved.