The United Electric Cooperative Services ability to collect securitized charges from all retail customers in its service area will secure approximately $453 million ratepayer-backed bonds through the United Electric Securitization, Senior Secured Cost Recovery Bonds Series 2022.
With no definitive closing date at press time, the transaction will devote proceeds to cover costs incurred from the February 2021 winter storm's fallout, according to Fitch Ratings.
The Texas Utilities Code's financing order in Subchapter D of Chapter 41 will drive repayment of the bonds, according to Fitch. Storm-related financial losses ranged from $80 billion to $130 billion, according to the Texas Comptroller of Public Account's website.
Jeffries is the lead underwriter on the transaction, for which United Electric Cooperative Services will serve as servicer and the Bank of New York Mellon Trust Company will serve as trustee on the deal, Fitch said.
One positive aspect of the deal, Fitch said, is that special securitized charges from all retail customers in United Electric's service territory will generate the cash flow to support the utility tariff bonds, ultimately, according to Fitch.
But the deal has a couple of drawbacks that pose potential challenges to the repayment of notes, according to Moody's Investors Service. If electricity consumption is inaccurately forecast, customers experience unanticipated delinquencies and defaults, the population migrates, or the area experiences storms and natural disasters, collections from the securitized charges could fall short.
The securitized charge, supposedly representing an average of approximately 7.2% of the total monthly electricity bill is also relatively high, Moody's says. The initial securitized charge is higher than the 5% average for utility cost recovery charges among Moody's rated transactions, the company said.
But even that drawback is somewhat mitigated, as Moody's expects the securitized charge to decrease over time.
Another mitigating factor, according to Moody's, is that the transaction includes an uncapped true-up adjustment mechanism that allows the servicer to increase the securitized charge billed to consumers, ensuring that the trust will continue to meet outstanding debt service payments.
Moody's expects to assign 'Aaa' ratings throughout classes A-1, A-2 and A-3; while Fitch will assign 'AAA' to the notes as well. The notes have legal final maturities that range from June 2035 through December 2052.
