NEW YORK--(BUSINESS WIRE)--
Fitch believes the true-up mechanism structured in each utility tariff (UT) ABS transaction within its rated portfolio provides adequate credit support to maintain 'AAAsf' ratings through the damage and recovery from Hurricane Sandy. While the majority of buildings in lower Manhattan and the New Jersey shore area had their electricity supply renewed quickly, some are still without power as utility systems are upgraded and repaired.
Although Hurricane Sandy's impact was felt across a large portion of the North East, Fitch's portfolio only has exposure to eight UT ABS transactions issued by New Jersey utilities. As of the December 2012 payment date, the total outstanding balance of these transactions was $1.32 billion, which represents approximately 11% of the $12.10 billion Fitch-rated portfolio (36 transactions).
The true-up mechanism is the primary credit enhancement in UT ABS transactions. True-ups vary on a transaction basis, but generally are structured to occur on a semi-annual or annual basis. During the true-up period, the tariff rates are adjusted up or down to account for the variance in consumption from the prior six or twelve months. This adjustment helps to ensure adequate cash flow will be available to make principle payments in accordance with the amortization schedule. All UT ABS transactions rated by Fitch have been structured with a true-up mechanic.
In our view, the manageable increase in delinquencies (days in arrears) and moderate decrease in electricity consumption in the aftermath of Hurricane Sandy will not result in principle shortfalls or capital subaccount withdraws on any of the eight New Jersey transactions. Furthermore, tariff rates during the next true-up period across these transactions may increase marginally from historical levels. As such, principle payments are expected to be made in accordance with the amortization schedule. Fitch does not expect any negative rating actions on these eight outstanding transactions.
More detail will be available in the coming week in Fitch's "Outlook and Performance Review for U.S. Utility Tariff ABS." It will provide a performance snapshot on the transactions we rate.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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