As the utility stranded cost sector grows, the state of Texas looks to be the next asset-backed securities hot spot for energy peddlers, with the first of two deals from Central Power & Light Co. hitting the market within the next few months, according to a source at the company. Texas Utilities should be right behind CPLC, the source said.
Under the assumption that the financing order is not appealed by the state's utility commission, launch should occur first quarter next year.
Though most of the details have to be disclosed, the transaction is likely to be structured in multiple parts, and managed by Goldman, Sachs & Co., the source said.
"Most of these [utilities deals] have been rated triple-A," the source explained. "The rating will be based on the strength of the financing order. That's normally the way it works."
As with the few previous stranded-cost transactions, CPLC's bonds will be backed by customer revenue streams.
"What you're securitizing is the assurance from the state that they will not interfere with the rates associated with those assets," the source said. "Because of that assurance, you can finance at a lower cost, because you reduce your cost to capital, and in the long run, you reduce the cost to customer too."
The source declined to comment on the details of CPLC's second deal, and only said that it will likely come to market in spring, and be based more specifically on revenues related to a "nuclear power plant type product."
Pennsylvania-based PECO Energy entered the stranded cost market in March with a $4 billion dollar deal, and most recently, PP&L Energy, also of Pennsylvania, came to market with a $2.4 billion deal.
"There's going to be a fair amount of paper hitting the street," said the source.