The recent Boston Edison Co. $675 million rate reduction bond deal priced to record tight spreads for the sector, coming on the heels of a $1.9 billion rate reduction bond deal from Pacific Gas and Electric Co. last month that also re-priced the sector (see ASR, 2/7/05). Goldman Sachs and Lehman Brothers led the four-tranche deal tagged Massachusetts RRB 2005-1.
Its $109 million A1 tranche priced two basis points through EDSF. The $154 million A2 tranche priced one basis point through swaps, and the $144 million A4 tranche priced 10 basis points above swaps, all representing the tightest ever spreads to swaps for a stranded cost offering. The $266 million A3 tranche was the only class not to set a new record, but instead tied the spread of the A3 tranche of last month's PG&E deal at swaps plus three basis points.
One market observer said that although the deal did price in-line to tighter than the most recent rate reduction deals, it missed out on the value that was available in the market, and should have priced even further through its predecessors. "The relative value pricing, compared to cards or compared to the TXU deal was a step backwards. These rates hardly reflect the tremendous tightening that has occurred in the last nine months, or the value of the asset compared to other assets," added the source.
"It was the tightest print ever [in the sector]," countered a Lehman syndicate source who said the deal was mostly sold to U.S. investors and there was a good deal of crossover interest between corporate and ABS buyers. The source added that one of the most compelling issues for investors is that there has been a preponderance of floating rate paper in the market, and this deal offers a chance for investors to get robust cashflow in a fixed-rate instrument. "For total rate of return investors it is a great deal," he said. - GC
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