KBRA releases a research report providing an overview of customer rate relief (CRR) transactions and their credit characteristics.

As powerful storms and other severe weather events impose outsized strains on utility infrastructure across the U.S., affected utility companies are increasingly tapping capital markets to recoup associated losses. Most commonly, public utilities are pooling together their customer bases and pledging CRR charges due on top of monthly bills to serve as collateral for CRR bonds, allowing them to receive upfront financing at a lower cost than at the corporate-issued level. While consumers ultimately bear the incremental expense, they also benefit, as the costs are generally spread out over years, avoiding one-time outsized charges in the event’s near-term aftermath.

Key Takeaways

• Although CRR bonds have been around for 20 years, they have recently grown in popularity as a financing method for utility companies to recoup one-time costs associated with natural disasters.
• CRR bonds are primarily collateralized by cash flows from CRR charges added to customers’ monthly utility bills. These payments are typically a higher priority than other utility bill items, which, when combined with their non-bypassability features and true-up mechanisms, generates a strong underlying cash flow stream to pay interest and principal.
• CRR asset-backed securities (ABS) transactions typically feature true-up adjustments at least annually, and as frequently as monthly with interim adjustments, whereby the monthly amount charged to customers is adjusted based on the difference between the aggregate collections received and the aggregate collections expected to make timely debt payments. These transactions also feature a funded reserve account to help the bonds meet their scheduled amortization.
• As more severe weather incidents occur in the U.S. and investor acceptance for CRR bonds increases, KBRA expects more utility companies to issue CRR bonds as a cost-effective financing option.

Click here to view the report.

Related Publications

• Texas Natural Gas Securitization Finance Corporation
• ABS: General Global Rating Methodology for Asset Backed Securities

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1004489

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