Up to $3.6 billion of Texas natural gas securitization bonds to price in March

A big Texas bond deal to recover extraordinary costs incurred by natural gas utilities during a fierce 2021 winter storm finally won approval Friday from a state board, paving the way for pricing next month. 

The Texas Bond Review Board approved the issuance of up to $3.6 billion of taxable customer rate relief bonds by the Texas Natural Gas Securitization Finance Corporation after delaying action on the deal in November to conduct a review of the transaction.

Lee Deviney, executive director of the Texas Public Finance Authority, told the board a preliminary official statement will be posted Wednesday with pricing slated for March 8 and 9. 

Bloomberg News

He added the deal will include a make-whole call option that could be tapped within a three-year window from the date of issuance. 

"The cost of the make-whole call is going to be dependent on where Treasury rates are at the time the bonds are called," Deviney said. 

The possibility of calling the bonds came at the board's meeting last month after biennial budget bills filed in the Texas House and Senate contained provisions saying "it is the intent of the legislature to provide funding to meet the obligations issued by the Texas Natural Gas Securitization Finance Corporation." 

Sarah Hicks, Gov. Greg Abbott's representative on the board, said "everybody wants to make really sure that customers are the most protected as they can be and the legislature has the most options to offer that protection."

The customer rate relief bonds will be repaid with charges imposed on customers of eight natural gas utility local distribution companies, which were hit with huge costs for the commodity needed to heat homes and businesses as well as generate electricity during 2021's Winter Storm Uri.

The bonds will be offered in two tranches with April maturities in 2033 and 2039. The deal, which was initially sized at $3.4 billion, received preliminary ratings of triple-A from Fitch Ratings, Moody's Investors Service, and Kroll Bond Rating Agency, according to Deviney.

An underwriting team led by Jefferies shrank after co-managers UBS and Citigroup were dropped from the deal.

Citigroup's removal followed the Texas attorney general's office action last month barring the bank from participating in deals after determining its commercial firearms policy runs afoul of a 2021 state law prohibiting government contracts with companies that "discriminate" against the gun industry. The Texas comptroller's placement of UBS on a list of fossil fuel boycotters in August under another 2021 law, disqualified it from state and local government bond issues.

The Texas Legislature passed a series of bills in response to the storm. For natural gas providers, House Bill 1520 authorized securitization financing to provide customers with rate relief by extending the period over which they will pay the extraordinarily high gas costs.