Spain plans by the end of this month to sell the first tranche of an eventual 17.6 billion euros ($24.8 billion) of bonds backed by revenue from consumer electricity bills, three people familiar with the deal said.
Bankers will begin taking orders for at least 1 billion euros of the Spanish government-guaranteed debt once the prospectus is approved by the country’s securities regulator, said the people, who asked not to be named because the deal is confidential. The process has been set back by delays in gaining approval from the regulator, they said.
The government hasn’t sold such bonds since before New York-based investment bank Lehman Brothers Holdings Inc. collapsed in September 2008 and helped trigger a global credit crunch that undercut investor interest.
“A successful transaction would help Spanish utilities maintain their ratings which are at risk given their currently stretched credit metrics,” Herve Gay, a credit analyst at Societe Generale SA in Paris, said in an e-mail.
Spain will use the proceeds to pay back utilities including Iberdrola SA and Enel SpA’s Endesa unit for using their own funds in the past decade to subsidize power prices, or tariffs, to hold down the cost for consumers. Spanish law guarantees that the power companies can recoup the so-called tariff deficit.
Investors may be willing to buy bonds maturing in about three to five years, two of the people said. Bankers arranging the deal met with money managers during September and October.
Iberdrola, Enel Owed
Iberdrola and Enel’s Endesa, Spain’s biggest power producers, are owed 3.7 billion euros and 7.7 billion euros, respectively, after using their cash and debt to cover the gap between revenue they receive from customers and what has been promised by the government. About 3 billion euros is owed to other Spanish utilities, including Gas Natural SDG SA and the local units of E.ON AG and EDP-Energias de Portugal SA.
The debt of all Spanish utilities from delayed electricity payments, including the local units of E.ON and EDP-Energias de Portugal, will reach 14.6 billion euros by the end of this year, a government report showed. A further 3 billion euros of the tariff deficit forecast for 2011 and 2012 will also be eligible for securitizing.