ALLENTOWN, Pa.---PP&L Transition Bond Company LLC agreed today (7/29) to sell $2.42 billion of transition bonds in eight different classes, carrying expected average lives ranging from 1 year up to 8.7 years. PP&L Transition Bond Company is a wholly owned subsidiary of PP&L, Inc., which is the major subsidiary of PP&L Resources, Inc. (NYSE: PPL). The sale will securitize a portion of PP&L, Inc.'s competition-related transition costs in connection with the deregulation of the generation portion of Pennsylvania's electric utility industry.
"Issuance of these bonds, coupled with related financing transactions, will create savings that improve earnings for our shareowners and result in lower rates for PP&L, Inc.'s customers," said John R. Biggar, PP&L Resources senior vice president and chief financial officer.
Biggar went on to add, "We have taken a number of important steps in recent months that maximize the benefits of this transaction for both our shareowners and our customers. These steps include previously executed transactions that will permit the repurchase of 14 million shares of PP&L Resources common stock concurrent with the closing on the transition bonds. We have also entered into a series of interest rate hedges over the last five months that will result in an effective average interest rate on the transition bonds that is significantly below current market rates." Biggar added, "PP&L is currently offering to repurchase about $1.7 billion of its highest coupon debt securities using the proceeds from securitization to fund these repurchases.
"As a result of these transactions, we expect to see an increase of about 5 cents per share in year 2000 earnings over the previous forecast of $2.40 per share, and an increase of 10 cents per share in year 2001 earnings over the previous forecast of $2.60 per share," Biggar said.
Savings from securitization are expected to reduce PP&L customer bills by an average of about 1 percent through Dec. 31, 2008. The actual reduction will vary year by year in that period and also by customer class and level of use.
This reduction will apply to all of PP&L, Inc.'s retail delivery customers, whether they buy their generation supply from PP&L, Inc. or from another company.
The specific classes, principal amounts of the transition bonds, average lives, coupon rates, prices and yields are as follows:
PP&L Transition Bond Company Bonds
|
Class |
Principal Amount
($ millions) |
Average Life
(years) |
Coupon Rate |
Price |
Yield |
|
A1 |
293 |
1.0 |
6.08% |
99.9927 |
6.125% |
|
A2 |
178 |
2.0 |
6.41% |
99.9821 |
6.466% |
|
A3 |
303 |
3.0 |
6.60% |
99.9992 |
6.651% |
|
A4 |
201 |
4.0 |
6.72% |
99.9947 |
6.775% |
|
A5 |
313 |
5.0 |
6.83% |
99.9659 |
6.894% |
|
A6 |
223 |
6.0 |
6.96% |
99.9820 |
7.022% |
|
A7 |
455 |
7.2 |
7.05% |
99.9949 |
7.111% |
|
A8 |
454 |
8.7 |
7.15% |
99.9941 |
7.213% |
The sale is the fifth largest such transaction involving transition cost asset-backed bonds to date in the United States.
All of the transition bonds are being sold to a syndicate of underwriters managed by Morgan Stanley Dean Witter and consisting of Morgan Stanley Dean Witter; Credit Suisse First Boston; Merrill Lynch & Co.; Salomon Smith Barney; Banc One Capital Markets, Inc.; Chase Securities Inc.; First Union Capital Markets Corp.; Mellon Financial Markets, Inc.; Janney Montgomery Scott Inc.; and Pryor, McClendon, Counts & Co., Inc.
The transition bonds are expected to be rated AAA by Standard & Poor's Rating Group and Fitch IBCA and Aaa by Moody's Investor Service.
In a series of orders issued by the Pennsylvania Public Utility Commission, PP&L, Inc. was granted the right to securitize up to $2.85 billion of a total of $2.97 billion of transition costs approved for recovery.