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Bonds / Debt Markets

Solution in Search of a Problem

Byline: 

Thomas Feldman

Magazine Volume: 
Fortnightly Magazine - December 2012

Utilities seeking financing for environmental upgrades should look to the markets for debt and equity, rather than trying to securitize those costs.

Image: 
Figure 1 - Securitization by Purpose (% of Total)
Figure 2 - Risk Compression Caused By Securitization
Category: 
Transactions Business & Money
Author Bio: 

Thomas Feldman is a principal at Concentric Energy Advisors.

Category (Actual): 
Rate Cases
Environmental
Bonds / Debt Markets

Securitization fails the test for financing environmental capex.

Transactions (October 2012)

Magazine Volume: 
Fortnightly Magazine - October 2012

Exelon sells plants in Maryland and Cali; Mitsui buys into Viridity; Duke issues $1.2B; plus deals at TVA, Xcel, PG&E, etc. totaling $4.9B.

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Category: 
Transactions
Category (Actual): 
Transactions
Mergers & Acquisitions
Bonds / Debt Markets

Last Call

Byline: 

Michael T. Burr

Magazine Volume: 
Fortnightly Magazine - October 2012

Conditions are ideal for utility financing—but not forever. Although interest rates remain low, policy changes weigh on capital structures.

Image: 
Figure 1 - 10-Year Bonds
Figure 2 - 30-Year Bonds
Figure 3 - Utility Bond Tenors
Figure 4 - Utility & Power Ratings Snapshot
Rising interest rates and unknown dividend tax policies could be a headwind for utility stocks. –Brian Tate, Wells Fargo Securities
Utilities have a significant amount of capex planned in the near term, and bonus depreciation is not a funding strategy. –David Nastro, Morgan Stanley
There’s good reason to believe there will be a lot of M&A activity around contracted renewable assets in 2013. –Frank Napolitano, RBC Capital Markets
Sidebar: 
Sidebar Title: 
Pay It Forward
Sidebar Body: 

One way that some utilities have been getting ahead of market changes is by issuing equity to pre-fund costs they expect to incur later. This generally takes two forms: equity forward contracts, and mandatory convertible offerings. Examples include Pepco Holdings, which sold about $350 million in shares on a forward basis in March, and PPL, which sold about $270 million in April. Also, NextEra Energy issued $600 million in three-year, mandatory convertible bonds on May 1, and another $650 million in September.

Both approaches carry a premium, but they allow utilities to capture today’s high stock prices in a forward sale. And some issuers have found banks hungry enough to participate in equity deals that they’ll take a substantial haircut for the opportunity. (See “BofA loses $12m on bought convert,” IFR 1932, May 2012.)

However, terms likely will normalize as soon as the current confluence of forces drives utilities back into the equity markets in earnest.–MTB

Author Bio: 

Michael T. Burr is Fortnightly’s editor-in-chief. Email him at burr@pur.com.

Category (Actual): 
Strategy & Planning
Stocks / Equity Markets
Bonds / Debt Markets

Utilities are enjoying some of the best financing terms anybody’s ever seen. Is the party winding down?

Views from the Bond Side

Byline: 

Josh Olazabal

Magazine Volume: 
Fortnightly Magazine - October 2012

Bond investors are keen for signs of a legitimate recovery, and will be looking to move into holdco bonds.

Category: 
Op Ed
Author Bio: 

Josh Olazabal is a vice president in the credit research group at PIMCO’s Newport Beach office. Previously he was a consultant with McKinsey & Co., and worked in corporate development at Duke Energy before that.

Category (Actual): 
Strategy & Planning
Bonds / Debt Markets

How fixed income investors view the utility sector.

Transactions (September 2012)

Magazine Volume: 
Fortnightly Magazine - September 2012

Duke and Progress complete their merger; NRG agrees to acquire GenOn; Algonquin acquires National Grid's New Hampshire distribution business, and acquires an interest in Gamesa's Sandy Ridge wind project; plus other equity and debt transactions, totaling more than $34 billion.

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Category: 
Transactions
Category (Actual): 
Transactions
Mergers & Acquisitions
Bonds / Debt Markets

Transactions (August 2012)

Magazine Volume: 
Fortnightly Magazine - August 2012

(August 2012)

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Category: 
Transactions
Category (Actual): 
Transactions
Mergers & Acquisitions
Bonds / Debt Markets