PG&E Recovery Funding is returning to the securitization market to issue $1.4 billion in asset-backed securities (ABS) in its first deal of the year.
The senior recovery bonds will raise funds to finance risk mitigation and capital spending related to wildfire damage to its electric power grid, according to ratings analysts at Moody's Ratings. Like other bond deals associated with power grids, PG&E will repay noteholders from revenue generated by surcharges added to customers' utility bills. The Wildfire Financing Law authorizes utilities to include the surcharge and provides the flow of revenue to the notes.
The transaction will issue notes through three tranches of A notes, according to Moody's. Asset Securitization Report's deal database. Notes are expected to yield 4.8% on the most senior notes, A1 through 5.5% on the A3 tranche, pricing at par. All notes on the deal, will be benchmarked to the three-month interpolated yield curve.
Pacific Gas and Electric is the sponsor and depositor Citigroup Global Markets,
The A1, 2, and 3 bonds will be repaid sequentially and do not benefit from subordination. There is a capital subaccount that provides sufficient funds to offset typical variance in collections, versus projections to meet the projected amortization schedule between the periodic true-up adjustments to the fixed recovery charges (FRC).
The statute that makes the bonds possible also includes an uncapped, true-up adjustment that ensures there is enough FRC to make timely payments of interest and scheduled principal on the bonds and related ongoing finance costs until the bonds are paid in full.
Another credit strength related to the ratepayer base. PG&E has a service territory with a population of about 10 million consumers and around 5.6 million retail electric service that support the base of the assets in the deal.
Moody's assigns Aaa to all of the notes, while S&P Global Ratings assigns AAA.
