San Francisco-based Pacific Gas & Electric Co. last week priced its second rate reduction transaction of the year, an $845 million offering via Barclays Capital, Citigroup Global Markets and Morgan Stanley as joint-lead underwriters. The deal is the second part of the company's $3 billion rate reduction bond, also called energy recovery bonds or stranded assets, issuance program authorized by the California Public Utility Commission last year.

The deal, tagged 2005-2, priced a two-year A1 tranche at three basis points under swaps, and the five-year A2 tranche priced at two basis points over swaps, both on the tight rim of guidance. The 6.8-year A3 tranche priced at six basis points over swaps, flat to guidance. All three tranches of the deal were rated triple-A.

The levels were tight to PG&E's $1.9 billion, 2005-1 deal issued in February. The two-year tranche of the current deal was a full four basis points tighter than the three-year tranche of the 2005-1, while the five-year tranche was one basis point inside the comparable class of its predecessor. The 6.8-year tranche of the 2005-2 deal priced five basis points inside the pricing of the two roughly similar length tranches on the 2005-1. For the 2005-2 deal, the one- and three-year tranches were combined, as well as the 6.5 and 7.6 year tranches, said one banker who worked on the deal.

The banker attributed the tighter spreads to a robust market for fixed-rate issuance and the fact that the syndicate was able to tap a broad book of investors, many of them new to the asset class. The banker said roughly 40 investors participated in the deal, mostly asset managers and all from the U.S.

Though the pricing was an improvement on PG&E's previous deal, it remained outside the record levels set by September's $102 million deal from Newark, N.J.-based Public Service Electric & Gas Co. The two-year tranche of that deal priced at five basis points under swaps and the five-year at two basis points under swaps. The next comparable tranche, the seven and one-half-year, priced four basis points over swaps.

The rate reduction bond sector has been relatively active this year with four other deals issued totaling around $2.8 billion and with a $1.89 billion deal expected from Houston-based issuer CenterPoint Energy before the end of the year (see ASR 8/22/05).

An official in the PG&E treasurer's office did not return inquiries as of press time.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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