Texas natural gas securitization priced as bill to pay off bonds advances

Underwriters completed pricing Thursday of a $3.52 billion Texas securitization deal for natural gas providers, but the bonds may stay in investors' hands only for a short time.

The Texas Senate Finance Committee advanced a supplemental appropriations bill Wednesday that includes money to pay off the bonds and possibly debt incurred by other utilities as a result of 2021's Winter Storm Uri in order to ease the financial hit to energy customers. 

Texas Legislature

The two-tranche, taxable Texas Natural Gas Securitization Finance Corp. customer rate relief bond issue was structured with final maturity dates in 2035 and 2041, scheduled final payments dates in 2033 and 2039, and weighted average life of 5.96 and 13.42 years.

An underwriting team led by Jefferies priced $1.8 billion of the 2035 bonds with a 5.102% coupon at a spread over comparable U.S. Treasuries of 90 basis points, according to the final scale. The $1.7 billion of 2041 bonds were priced with a 5.169% coupon at a spread of 125 basis points.

"The bond offering was very well received as indicated by the favorable pricing results," Lee Deviney, executive director of the Texas Public Finance Authority, which created the corporation last year, said in an email. "Spreads to Treasuries from pre-marketing to launch were tightened 35–37.5 basis points, and by the end of the launch period the offering was a little over 4.5 times subscribed for."

The deal, which was aimed at recovering extraordinary costs incurred by certain natural gas utilities during the fierce storm, included a limited make-whole redemption over the next three years in the event state funding becomes available to pay off the debt.

A $3.86 billion appropriation in Senate Bill 30 originally targeted only the corporation's bonds, which will be paid off with charges added to customers' gas bills. 

After some Senate Finance Committee members complained customers of electric cooperatives and other gas utilities that were also hit with sky-high costs during the storm were omitted from the bill, the provision was amended. Committee Chair State Sen. Joan Huffman said the amendment was broadly worded to provide the funds contingent on the enactment of unspecified legislation.

"It just leaves open the opportunity for further discussion in the Senate," she said.

Huffman had introduced SB 1501 as a mechanism to direct the appropriated funds to the corporation's bonds. State Sen. Robert Nichols subsequently filed a bill allowing retail customers of electric cooperatives to benefit.

An amended SB 30 was sent to the full chamber after being unanimously approved by the committee.

On Wednesday, Deviney told the committee if all of the appropriation is not earmarked for the natural gas securitization financing, it would be possible to call only some of the bonds.

The bonds' pricing was originally targeted for mid-August and later expected in November, before it was delayed that month by the Texas Bond Review Board for a full review. On Feb. 17, the board finally approved the deal with the addition of an optional redemption. 

The bonds received preliminary triple-A ratings from Fitch Ratings, Moody's Investors Service, and Kroll Bond Rating Agency.

Meanwhile, a lawsuit has been filed by a Houston data company in Harris County District Court against a slew of energy companies and financial firms, claiming they acted to artificially drive up natural gas prices ahead of the 2021 storm, the Houston Chronicle reported Friday. Defendants in the lawsuit include CenterPoint Energy and Atmos Energy, which were among the natural gas providers participating in the corporation's securitization financing.