Public Service Co. of New Hampshire, a subsidiary of Eversource Energy that services some 70% of the Granite State, is marketing $636 million of bonds backed by a restructuring charge.

The utility is in the process of auctioning off its 15 fossil fuel and hydroelectric power plants in order to comply with a state law stripping it of its monopoly on generation. Its regulator has authorized a restructuring charge on electricity customers designed to recoup the portion of past investments in the plant that it is not expected to recovery under competitive market rates for electricity.

This charge is nonbypassable: It will be imposed on all electricity customers in the utility's service area, regardless of whether they obtain their power from PSNH.

Securitizing the fees allows the utility to recover the bulk of the costs at once. Restructuring fees will be used to pay the interest and principal on bonds to be issued by a bankruptcy remote entity that owns the rights to the revenue stream.

Three tranches of notes rated AAA by Fitch Ratings will be issued in the transaction, dubbed PSNH Funding LLC 3: $235.9 million of notes maturing in February 2026, $111.6 million of notes maturing in August 2028, and $288.16 million of notes maturing in February 2035. All three tranches benefit from 0.5% credit enhancement in the form of a capital subaccount.

Goldman Sachs is the lead underwriter.

However, the primary form of credit enhancement, according to Fitch, is what’s called a true up mechanism. The rate restructuring charge will be adjusted annually (or more often, if necessary) to ensure that collections are sufficient to provide all scheduled payments of principal and interest, pay fees and expenses and replenish the capital subaccount.

The true up mechanism is designed to address shifts in consumption that can be caused by factors such as the introduction of new technologies, demographic changes or shifting usage patterns.

The state of New Hampshire has pledged that neither the state, nor any of its agencies, including the NHPUC, will limit, alter, amend, reduce or impair the restructuring charges until all of the bonds’ principal, interest, premium, costs and arrearages are fully met and discharged.

Fitch also takes comfort from its calculation that the restructuring charge will not exceed 20% of customers’ bills, even under various stress scenarios.

PSNH’s service area covers portions of all 10 counties within New Hampshire, which, as of July 2017, has an estimated population of 1.3 million.

For the next 15 years (which is the tenor of the bonds), PSNH expects the New Hampshire population to remain stable with growth forecast at 5%. Over the same period, unemployment is forecast to average approximately 3.52%, and personal income is expected to increase on average 1.5% per year.

This transaction is PSNH’s third stranded cost securitization. The first two closed in 2001 and 2002 and have paid in full and performed within Fitch’s initial expectations.

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