Investors seeking liquidity and a shorter amortization schedule forced Western Massachusetts Electric vehicle WMECO to widen offered spreads from initial guidance of 45 to 50 basis points over seven-year swaps to launch levels in the 55 basis point area, sources said. The final pricing spread for the 6.9-year offering was 60 basis points over swaps.
Prior to the deal's official launch, talk on the Street was that WMECO would have to widen offered spreads for the single-tranche fixed-rate offering in order to entice investors to buy the long-dated paper, which some thought spread out interest payments over too long a period.
"The wide window of the passthrough structure is hurting this deal," a source close to the deal said prior to pricing. "Word is, spreads will have to widen in order to get done."
Randy Shoop, assistant treasurer at parent company Northeast Utilities, noted that the amortization schedule was mandated by the state regulatory body and therefore could not be altered to fit investor demands. Shoop also noted that the relatively small size of the deal lacked the liquidity sought in the relatively small niche of the ABS market.
"I think the widening was due more to the fact that this was not as big as some of the other deals seen in the sector this year and it follows the $7 billion that has already priced this year," Shoop said.