MOODY'S RATES CENTRAL POWER AND LIGHT COMPANY'S STRANDED COST SECURITIZATION Aaa
Moody's Investors Service assigned Aaa ratings to five classes of notes issued by CPL Transition Funding LLC. This is the second stranded cost securitization from the State of Texas and the first for 2002 as this asset class winds down.
The ratings of the notes are based on state legislation and on a Texas Public Utility Commission rate order that authorizes a tariff, known as a transition charge, to be collected from all classes of retail customers. The ratings are also based on the 0.50% of the initial note amount of cash equity; over-collateralization scheduled to reach 0.50% of the initial note principal amount; dynamic annual adjustments to the transition charge; and the experience of Central Power and Light Company (CPL) as servicer.
"The transition charge is expected to be a small amount of the consumer's bill during the life of the transaction, which makes it less likely that the charge will be subjected to future political opposition or legal challenge," said Bruce Fabrikant, a Moody's senior vice president. In addition, there is no provision under Texas law allowing for initiative or referendum that could challenge the Texas electric industry restructuring or the transition charge.
The CPL transaction is similar to other stranded costs securitizations. The transition charge is assessed and reconciled annually, with the remaining obligations of the securitization allocated among all rate classes by a pre-determined formula set at the transaction's outset. However, the allocation of the transition charge burden among rate classes will be adjusted if there are large shifts in the power consumption of particular rate classes.
One feature that distinguishes Texas from other States that have completed electric industry restructuring is that the Texas plan will shift all retail sales and billing functions from incumbent utilities to new entities referred to as retail electric providers (REPs). The REPs will collect transition charges and are obligated to remit them to CPL 35 days after receiving the bill from CPL, whether or not the retail customer has paid the REP. The presence of the REPs as intermediate collectors of the transition charge introduces credit risk of the REP; however, the protections incorporated in the transaction, most notably, shortfalls due to REP default maybe recovered from the annual true-up and deposits to be posted by non-investment-grade REPs, mitigate this risk. Moody's believes CPL is an experienced utility servicer.
The complete rating actions are as follows:
Issuer: CPL Transition Funding LLC
$128,950,233 Class A-1 Transition Notes, Series 2002-1, Aaa
$154,506,810 Class A-2 Transition Notes, Series 2002-1, Aaa
$107,094,258 Class A-3 Transition Notes, Series 2002-1, Aaa
$214,926,738 Class A-4 Transition Notes, Series 2002-1, Aaa
$191,856,858 Class A-5 Transition Notes, Series 2002-1, Aaa
CPL is an investor owned utility engaged in the generation, sale, purchase, transmission and distribution of electric power to approximately 680,000 customers in portions of south Texas, including the city of Corpus Christi, and in supplying wholesale electric power to surrounding electric utilities and municipalities. CPL headquartered in Dallas, Texas is an operating subsidiary of American Electric Power Company, Inc. CPL Transition Funding LLC is a special-purpose Delaware single member limited liability whose sole member is CPL and was formed to acquire the securitization property and to issue the bonds. CPL has a senior unsecured long-term debt rating of Baa1.
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