CenterPoint Subsidiary Offers Bonds Supported by Transition Property

CenterPoint Energy Transition Bond Co. IV, LLC is issuing $1.695 billion of senior secured transition bonds in multiple tranches.  A wholly-owned subsidiary of public utility holding co. CenterPoint Energy, Inc., serves as the seller, initial servicer and sponsor.  The bonds are secured by transition property, which includes the right to a special, irrevocable nonbypassable charge, known as a transition charge, paid by all retail electric customers in the certificated service territory. 

The transition property is not a static pool of receivables or assets.  The utility restructuring provisions of the Public Utility Regulatory Act mandate and the Public Utility Commission of Texas requires that transition charges be adjusted at least annually, and semi-annually as necessary, to ensure the expected recovery of amounts sufficient to timely provide all scheduled payments of principal, interest and other required amounts and charges in connection with the bonds.  Credit enhancement for the bonds will be provided by such statutory true-up mechanism, as well as by general and capital subaccounts held under the indenture. 

Goldman, Sachs & Co., Citigroup Global Markets and Morgan Stanley & Co. are acting as representatives of the underwriters.  The prospectus supplement was filed on Form 424B2 filed 1/12/12 (SEC file no. 333-177662).  The underlying registration on Form S-3 includes the Texas PUC financing order as Exhibit 99.5.  The Form 8-K filed on 1/18/12 under file no. 001-03187 includes as exhibits the forms of indenture, transition property servicing agreement, transition property sale agreement, administration and intercreditor agreements.

SEC Adopts Accredited Investor Net Worth Standard Under Dodd-Frank

By Final Rule that becomes effective on February 27, 2012, the SEC has amended its rules to exclude the value of a person’s home from net worth calculations used to determine whether an individual may invest in certain unregistered securities offerings.  Dodd-Frank Act Section 413(a) requires the definitions of “accredited investor” in the 1933 Securities Act rules to exclude the value of a person’s primary residence for purposes of determining whether the person qualifies as an “accredited investor” on the basis of having a net worth in excess of $1 million.

SEC rules permit certain private and limited offerings to be made without registration, and without requiring specified disclosures, if sales are made only to “accredited investors.”  Under the amended net worth calculation, indebtedness secured by the person’s primary residence, up to the estimated fair market value of the primary residence, is not treated as a liability, unless the borrowing occurs in the 60 days preceding the purchase of securities in the exempt offering and is not in connection with the acquisition of the primary residence. In such cases, the debt secured by the primary residence must be treated as a liability in the net worth calculation.

Dodd-Frank Section 413(b) requires the SEC to review the definition of accredited investor every four years and authorizes the SEC to make adjustments based on its reviews.  The SEC also adopted technical amendments to Form D and a number of other rules to conform them to the requirements of Section 413(a) and to correct cross-references to former 1933 Act Section 4(6) which was renumbered Section 4(5) by the Dodd-Frank Act.