Wisconsin Electric Power Co. pulled the plug - at least temporarily - on plans to complete a $500 million ABS transaction to finance certain environmental upgrades to its facilities, saying it could not agree with other major players in the transaction about the distribution of liabilities in the transaction.
The transaction, if successful, would have been the first of its kind in Wisconsin. In October 2004, Wisconsin established a statute that allows utilities to issue asset-backed securities to finance the upgrades, to be repaid by fees added to consumers' bills. Wisconsin Electric had planned to raise $500 million in environmental trust financing (ETF) bonds, secured by charges paid by the public utility's customers.
That the utility has completely abandoned the deal seems highly unlikely to market sources, considering that the company was the driving force behind state legislation that created guidelines for executing ETFs. Planning for the securitization paralleled passage of the state legislation in 2004. Since then, Wisconsin Electric selected Deutsche Bank Securities and Barclays Capital as joint lead book runners on the transaction. It also selected a syndicate of co-managers. Further, a source familiar with the situation said, the financing order ultimately gives the utility until March 31, 2007 to complete a securitization.
Plans for the deal began to unravel as the utility questioned the distribution of liability in connection with the bonds. The company notified the commission that it would not do an ABS issuance to raise money for the environmental upgrades. While acknowledging that federal regulations held it responsible for all representations to investors about the transaction, company officials anticipated a situation wherein all major parties would take a major role in the liabilities connected to the deal, according to a letter to the commission from Roman Draba, vice president of regulatory affairs and policy at WE Energies. Asset Securitization Report received a copy of Draba's letter last week.
"Despite our mutual efforts to reconcile a situation where parties have significant input but not equal liability, we were unable to do so," read Draba's letter. It continued: "It may be such that a structure is ultimately irreconcilable. A lesson learned from this process is that the strict liability of the Company, its officers and directors must be taken into account in the future."
Eric Callisto, a spokesman for the Public Service Commission of Wisconsin, said that although the commission was disappointed that the Wisconsin Electric ETF transaction did not materialize, future bond offerings could succeed.
"I still have optimism that the statute works and that this company and other companies will be able to use it in the future," said Callisto, adding: "but it appears that this deal is done."
While keeping readers in the dark, Wisconsin Electric's cryptic letter ended by implying that a deal might still be in the offing, under the right circumstances. Quoting Thomas Edison's descriptions of his unsuccessful attempts to develop a feasible light bulb, it said: "I have not failed. I've just found 10,000 other ways that won't work'. I hope that the lessons we have all learned over the past several months may in some way assist in any potential efforts to issue ETF bonds in the future."
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