The Utility Debt Securitization Authority is preparing to issue $1 billion in asset-backed securities (ABS), which will be backed by revenue from irrevocable restructuring charges on its electric delivery to customers in its service area.
The Long Island Power Authority will sell the revenue stream, known as restructuring property, to the trust, and will initially service the restructuring charges, according to a recent release from Moody's Ratings, which noted that the deal closed in mid-December.
Bonds in the deal are limited obligations of Utility Debt Securitization, a special-purpose public benefit corporation that New York State law authorized to purchase restructuring property and issue bonds backed by the charges.
Utility Debt Securitization Authority Restructuring Bonds, Series 2025, will issue the bonds through two tranches of notes, both of which are rated Aaa. The 2025TE-1 and 2025TE-2 tranches have scheduled maturity dates of Dec. 15, 2045 and Dec. 15, 2039, respectively. Their legal final maturity dates occur two years later in each case, Moody's said.
Bonds are federally tax-exempt and fixed-rate, and will pay noteholders semi-annually.
One of the deal's main credit strengths, the rating agency said, is the strength of the financing act and financing order. Also, by law, the financing order mandates that Long Island Power Authority adjust the restructuring charges through an annual true-up adjustment mechanism.
If necessary, the mechanism can be paid more frequently to make sure the notes make timely payment of principal and interest of the 2025 revenue bonds and related financing costs. It will also need to cover at least 0.50% of the initial aggregate principal of the bonds to the debt service reserve account and 0.50% to the operating reserve account.
LIPA's service area covers about 1.2 million customers, of which residential customers account for about 55%, by billed revenue, Moody's said, while commercial customers account for 44%.
Yet one of the credit challenges is the costliness of the restructuring charge, Moody's said. Initially, the restructuring charge for the 2025 securitization can be about 1.8% of a typical 739 kWh residential bill from December 2025. This charge could total roughly 9.2% combined with other outstanding transactions, Moody's said. That is higher than the prior average of 5% for similar deals.
One mitigating factor is that the total charge can decline over time as the bonds are paid off, Moody's said.
