Pacific Gas & Electric Co., the San Francisco-based energy supplier, is back into the ABS market after an eight year absence and an historic plunge into and out of bankruptcy, but its bonds are none the worse for wear and are pricing at record tight levels. The $1.9 billion series 2005-1 deal, which priced last week, was led by Citigroup Global Markets, Lehman Brothers and Morgan Stanley and may serve to draw other issuers out of the woodwork after last year's low volume output.

The three shortest tranches of the deal all priced through guidance last Thursday, with the longer-dated two tranches pricing within guidance. Though the deal did not price as tightly as some market observers expected, it was reportedly oversold across the capital structure and could re-price the sector and open the door for other issuers from states such as Massachusetts, Wisconsin and New Jersey. "PG&E should be congratulated for market timing," said one market observer. "[Bringing a deal at these spreads] is like being born on third base and thinking you hit a triple."

The PG&E 2005-1 deal was structured with five-triple A rated tranches. The capital structure was offered as follows: $260 million one-year A1, a $655 million three-year A2, a $315 million five-year A3, a $475 million 6.5-year A4, and a $182.8 million 7.68-year A5. The one-year tranche priced flat to EDSF, one basis point through guidance and the three-year tranche priced at one basis point over swaps - two basis points through guidance in the three basis point area over swaps. The five-year tranche also priced two basis points through guidance to yield three basis points over swaps. The 6.5 and 7.68-year tranches each priced at 11 points over swaps, on par with guidance.

Citigroup Global Markets, Lehman Brothers and Morgan Stanley acted as joint lead managers on the deal.

A source close to the situation said the A1, A2 and A3 tranches were well oversubscribed, and while most of the interest in the deal came from U.S. investors, there was reportedly a healthy mix of corporate buyers interested as well.

Due to the relative scarcity of stranded cost deals, any deal that comes to market tends to have significant effects on the pricing of future deals, much more so than in other asset classes. Last year saw only two stranded cost deals come to market, totaling $836 million.

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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