American Electric Power's (AEP) Texas Central Co. (TCC) is issuing an $800 million utility-backed securitization.
The portfolio consists of transition bonds which represents the right to impose, collect, and receive through the applicable transition charges payable by retail electric customers within AEP TCC service territory, according to Fitch Ratings analysts who rated the deal.
The bonds are being issued to recover costs associated with the transition to a competitive retail electric market in Texas, a presale from Fitch stated.
Total issuance is expected to consist of three tranche A bonds totaling approximately $800 million that have all been assigned a preliminary rating of 'AAA'. Moody's Investors Service also rated the bonds 'Aaa'.
CenterPoint Energy, which services customers in and around Houston, Texas, priced its $1.69 billion securitization bonds at interest rates averaging 2.50% in January. According to Public Utility Commission chairman Donna Nelson, this was the lowest financing rate ever achieved of the 11 Texas electric utility securitizations deals done up to the January issue.
"This is a substantial reduction from what would have been a 7.66 percent rate without securitization," said Nelson in a press release. "Securitized debt provides funding at a lower cost than traditional utility funding because of the risk reduction that securitization gives to bondholders. Texas law allows the securitization of utility costs only if it provides a greater customer benefit than traditional financing methods."