CHICAGO–(BUSINESS WIRE)–Fitch Ratings assigns the following ratings and Rating Outlooks to the
Utility Debt Securitization Authority restructuring bonds series 2016B
— $26,250,000 T-1 bonds ‘AAAsf’ Outlook Stable;
— $33,200,000 T-2 bonds ‘AAAsf’ Outlook Stable;
— $37,715,000 T-3 bonds ‘AAAsf’ Outlook Stable;
— $38,655,000 T-4 bonds ‘AAAsf’ Outlook Stable;
— $8,015,000 T-5 bonds ‘AAAsf’ Outlook Stable;
— $8,215,000 T-6 bonds ‘AAAsf’ Outlook Stable;
— $35,850,000 T-7 bonds ‘AAAsf’ Outlook Stable;
— $36,745,000 T-8 bonds ‘AAAsf’ Outlook Stable;
— $44,930,000 T-9 bonds ‘AAAsf’ Outlook Stable;
— $46,050,000 T-10 bonds ‘AAAsf’ Outlook Stable;
— $12,930,000 T-11 bonds ‘AAAsf’ Outlook Stable;
— $13,255,000 T-12 bonds ‘AAAsf’ Outlook Stable;
— $2,940,000 T-13 bonds ‘AAAsf’ Outlook Stable;
— $3,010,000 T-14 bonds ‘AAAsf’ Outlook Stable;
— $36,645,000 T-15 bonds ‘AAAsf’ Outlook Stable;
— $4,350,000 T-16 bonds ‘AAAsf’ Outlook Stable;
— $26,830,000 T-17 bonds ‘AAAsf’ Outlook Stable;
— $28,185,000 T-18 bonds ‘AAAsf’ Outlook Stable;
— $10,000,000 T-19 bonds ‘AAAsf’ Outlook Stable;
— $15,550,000 T-20 bonds ‘AAAsf’ Outlook Stable.
The collateral for the restructuring bonds consists primarily of the
restructuring property, which represents the right to impose, charge and
collect through the applicable non-bypassable restructuring charges
(RCs) payable by retail electric customers.
Details regarding the restructuring bonds as well as Fitch’s stress and
rating sensitivity analysis are discussed in the presale report titled
‘Utility Debt Securitization Authority Restructuring Bonds Series
2016B’, dated Jul. 29, 2016, which is available on Fitch’s website. The
presale report details how Fitch addresses the key rating drivers which
are summarized below.
KEY RATING DRIVERS
Statutory and Regulatory Framework: The strength and stability of the
underlying RCs are established by the financing order issued by the
authority as part of the LIPA Reform Act. The financing order
establishes the irrevocable and non-bypassable RCs and defines
bondholders’ property rights in the 2016B restructuring property. The
financing order contains the key elements important in a utility tariff
securitization, as discussed in detail on page 19 of the presale.
Adequate Credit Enhancement via True-Ups: Mandatory annual true-up
filings adjust RCs to ensure collections are sufficient to provide all
scheduled payments of principal and interest, pay fees and expenses, and
replenish the debt service (1.50%) and operating reserve (0.50%)
subaccounts. Furthermore, semiannual and quarterly true-ups may occur if
necessary but must meet certain defined parameters.
Supports ‘AAAsf’ Stresses: Demand shifts in consumption can be caused by
various factors such as the introduction of new technologies,
demographic changes or shifting usage patterns, which present greater
risk in this transaction relative to others in this asset class given
the longer tenor of the restructuring bonds. Fitch’s ‘AAAsf’ scenario
analysis stresses key model variables such as consumption variance,
chargeoff rates, and delinquencies, to address this risk. Under Fitch’s
‘AAAsf’ stress assumptions, the aggregate RC for the series 2013T/TE,
2015, 2016A and 2016B transactions is 3.49 cents/kWh, or 16.75% of the
residential customer bill, which is consistent with ‘AAAsf’ ratings.
Therefore, there is no rating impact on the series 2013T/TE, 2015, and
2016A, as a result of the issuance of the series 2016B.
Sound Legal Structure: Fitch reviews all associated legal opinions
furnished to analyze the integrity of the legal structure.
While Fitch believes that bondholders are protected from the various
aforementioned risks based on the ‘AAAsf’ cash flow stress case, the
break-the-bond case provides an alternative means by which to measure
the potential effects of rapid, significant declines in power
consumption while capping the residential RC at 20% of the total
residential customers’ bill.
In this scenario, the structure is able to withstand a maximum
consumption decline of approximately 92.20% in year one. This is the
level of forecast energy consumption decline that would cause a default
in required payments on bonds or cause the RC to exceed 20% of the total
residential customers’ bill. Despite this severe decline in consumption,
because of the true-up mechanism, RCs are able to pay all debt service
by the legal final maturity date.
DUE DILIGENCE USAGE
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in
relation to this rating action.
Additional information is available at www.fitchratings.com
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Rating Criteria for U.S. Utility Tariff Bonds (pub. 21 Dec 2015)
Utility Debt Securitization Authority Restructuring Bonds, Series 2016B
Dodd-Frank Rating Information Disclosure Form
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