A pool of restructuring charges from ratepayers to the Long Island Power Authority, or the Authority, will secure $876.2 million in restructuring bonds from the Utility Debt Securitization Authority, Restructuring Bonds Series 2022.
New York State legislation created the issuer, known as UDSA, to securitize a special charge on power customers' utility bills, according to Moody's Investors Service. UDSA will use the proceeds to retire a portion of its outstanding debt, a portion of UDSA's outstanding debt, and to finance system resiliency costs.
The UDSA's collateral assets consist of restructuring property—the rights and interest of the issuer under the financing order, according to Moody's.
The Long Island Power Authority adopted a policy called Financing Order No. 6, which authorizes restructuring bonds that will ultimately be secured by the restructuring property. The Financing Order authorizes six actions, including the creation of the restructuring property, or revenue stream; the authority to sell the restructuring property to the issuer; imposing and billing charges on customers in the area, and collecting on them; issuing the bonds; use the proceeds to purchase the restructuring property from the Authority and pay upfront financing costs; and use proceeds of the sale to retire a portion of its outstanding debt.
The New York Public Authorities Control Board approved the Financing Order in May 2022, and it went on to become irrevocable, final and non-appealable, according to Moody's.
The rating agency noted that some 1.2 million residential (89.3%) and commercial (10.2%) customers in Nassau and Suffolk counties and the Rockaway Peninsula of New York, are in the UDSA's service area.
Moody's noted several aspects of the deal that should support the timely repayment of notes. For one, the New York securitization law includes an extensive pledge to bondholders, including that it will not allow the value of the restructuring property to be impaired or altered or reduce, alter or impair transition charges that are imposed, collected and remitted for bondholders' benefit.
The securitization benefits from the solid framework of the Financing Order, but some potential credit challenges could delay the timely repayment of notes, Moody's said. Collections from the restructuring property could fall short of debt service requirements, or the securitization law and financing order could face attempts at legal challenges. Yet the irrevocable and unconditional nature of the Financing Order mitigates any concerns about such potential challenges, the rating agency said.
