Saber Partners Assists Florida Public Service Commission in Precedent-Setting $1.3 Billion Bond Offering

  • Duke Energy Project Finance, LLC bond offering sets record-low 2.7% cost of funds, saving ratepayers $680 million in today’s dollars
  • Establishes new template for regulators and utilities in financing environmental upgrades and asset retirements
  • First-ever rate reduction bond offering included in Barclays Corporate Utility Bond Index

NEW YORK--()--Saber Partners, LLC, a leading Wall Street financial advisory boutique, successfully completed its assignment as financial advisor to the Florida Public Service Commission on the initial public offering of a $1.294 billion bond issuance by a subsidiary of Duke Energy Florida (NYSE: DUK). The AAA-rated nuclear asset-recovery bond offering, sold on June 16, was a utility industry first, creating a new type of “rate-reduction or ratepayer obligation charge (ROC)” bond. (For background on RRB/ROC bonds, click here.)

The Florida PSC approved the bonds to allow Duke Energy to recover costs related to the early retirement of its Crystal River III nuclear power plant. Publicly traded electric utilities typically sell this type of bond, subject to state legislation and regulatory approval, to fund the retirement of long-term assets and mitigate the impact on ratepayers.

Market Firsts

The offering’s 2.72% duration-adjusted weighted average cost of funds set a record low for the utility sector, dating back to 1997, when the first-ever rate reduction bonds were issued. It was also the first rate reduction bond offering to be classified in the Barclays credit index as corporate utility bonds, significantly expanding the pool of potential investors.

Andrew Maurey, the Florida PSC Director of Finance and Accounting, congratulated Saber and Duke Energy on the successful transaction, adding, “A lot of people were involved. We would not have had this result, though, without the tireless efforts of our financial consultants -- Saber Partners and Joe Fichera, in particular -- and our outside counsel, Dean Criddle of Orrick Herrington.”

The bond offering received the top credit rating AAA/Aaa from S&P and Moody’s, respectively, providing a new alternative for life insurance companies, pension funds and others seeking safe long-term investments. Only two companies today – Microsoft and Johnson & Johnson – have AAA debt ratings from S&P and Moody’s, down from six in 2008.

Complex Transaction

“Although this deal was designed to be a simple credit so that potential investors would easily understand the benefits of the investment, it required a complex transaction to get there,” said Joseph S. Fichera, Saber’s Chief Executive Officer.

Prior to last month’s issuance, less than 1% of the $49 billion in taxable rate reduction bonds issued since 1997 had weighted average maturities longer than 15 years. This was a formidable obstacle to overcome. Yet, Duke Energy Florida was able to sell more than $500 million in bonds with maturities of at least 15.2 years – including more than $250 million with a weighted average maturity of 18.7 years.

“To attract a wide spectrum of investors, boost market demand and competition for the bonds, and minimize the impact on ratepayers, the bonds were issued as corporate securities with five separate maturities,” he said. “Competition for the longest maturities produced the best results.” (See comparison against top rated securities at the time of pricing.)

Saber’s unique financing approach opened up an entirely new investor base for this type of bond and minimized the impact on ratepayers. Just as a 30-year home mortgage has a lower monthly payment than a 10-year mortgage, rate reduction/ROC bonds with long maturities reduce the monthly costs passed on to utility customers.

Structuring the bonds as a corporate security, as allowed under SEC rules, will help future issuers attract a wider investor pool. For nearly two decades, this type of bond has been universally categorized as an asset-backed security, an investment class generally prohibited from traditional corporate bond and European investors.

Second Florida Assignment for Saber Partners

The Florida PSC, in July 2015, unanimously selected Saber to advise its staff on all financial matters related to the bond issuance. It marked the second time the PSC has turned to Saber Partners. In 2005, the Commission also unanimously hired Saber to help Florida’s utilities recover the extraordinary costs of hurricane-related damages. The PSC transaction team, led by Mr. Maurey, pointed to Saber’s unmatched experience and qualifications in such bond deals. (Information on Saber Partners can be found here.)

Florida PSC Chair Julie Brown said of the Duke Energy deal, “The rate reduction bonds, with the lowest [cost] ever, will save Duke Energy customers hundreds of millions of dollars in the long run, as envisioned by the State Legislature.” She said ratepayers would save about $680 million (net present value) when compared to the projected costs under a traditional financing model. (See transcript of Florida PSC meeting and Duke Energy Florida’s “Issuance Advice Letter.")

Future Issuances

“As nuclear and coal power plants are retired before the end of their useful lives, this new cost-recovery structure can serve as a model for state legislators, regulatory commissions, utilities, and investors in taking outdated assets offline,” said Fichera.

Rate reduction bonds limit the rate increases required by utilities to recoup their remaining investment in plants set for early retirement. This financing mechanism could also be used to cost-effectively fund clean-energy and smart-grid initiatives.

In a public meeting following approval of the bond issuance, Charles Rehwinkel of the Florida Office of Public Counsel, on behalf of ratepayer groups, said, “The OPC saved its best thanks for the commission's advisor, Saber Partners and especially Joe Fichera, and the commission's bond counsel, Dean Criddle, who brought impressive expertise, experience, and discipline to the transaction and, without question, were instrumental in saving many millions of dollars for customers in current and future costs through their dogged and expert advocacy to achieve the optimum lowest cost for customers at the outset.”

About Saber Partners, LLC

Based in New York City, Saber Partners is a full-service financial advisory firm specializing in the power industry, and corporate and municipal finance. Its senior-level team of financial experts and economists includes former Wall Street executives, utility finance executives and state public service commissioners. Alan Blinder, former vice chairman of the Federal Reserve, is chairman of Saber Partners’ Advisory Board. The firm has a range of capabilities, including innovative financings, expert rate-case and securities testimony, financial modeling, economic consulting and investor relations. The firm was established in 2000.


Healy Corporate Communications
Sean Healy
201-857-2520 or 201-218-2039

Release Summary

Precedent-setting utility bond offering sets record low cost of funds of 2.7%. First rate reduction bonds listed in Barclays corporate bond index.


Healy Corporate Communications
Sean Healy
201-857-2520 or 201-218-2039