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Securitisation of the electricity tariff deficit

Jaime de la Torre Viscasillas

One of the main objectives of the recently approved legislation on the energy sector is to achieve tariff sufficiency, with the aim of solving some of the financial difficulties of electricity companies. Therefore, current and future tariff deficit must be financed and the mechanism approved under Royal Decree 6/2009 is the securitisation of collection rights in favour of a Spanish asset securitisation fund.

Tariff deficit is defined as the difference between the collected amounts of regulated tariffs, fixed by the government and paid by end customers for regulated supplies, plus the access tariffs, fixed by the liberalised market and the real costs related to such tariffs.

Under Royal Decree 6/2009, general measures were approved to finance the tariff deficit by holders assigning their collection rights (right to receive a percentage of the monthly invoices of the access toll over the following years) to an asset securitisation fund incorporated for that purpose – Fondo de Titulización del Déficit del Sistema Eléctrico.

Royal Decree 437/2010 of April 9, develops the securitisation procedure and specifies the Fund's assets and liabilities. The assets are: i) collection rights of up to €10 billion ($12.33 billion) existing on December 31 2008, which are not assigned to third parties; and ii) collection rights of up to €9.5 billion originated between January 1 2009 and December 31 2012. The liabilities (the asset securitisation bonds) will be issued to minimise financing costs. The final price of the securitisation bonds will be decided by agreement of the underwriting and placement entities, which should consider market conditions, or by auction.

Additionally Royal Decree 437/2010 also deals with the Fund's structure, assignment price of the collection rights, assignment conditions and how to choose the placement entities.

As the Spanish government may guarantee the securitisation bonds, they are expected to be rated AAA by Moody's and Fitch and AA by S&P.

Considering the amount of the transaction (between €10 and €20 billion) and that the Spanish government may guarantee the securitisation bonds, which are expected to be placed in the primary market, we think this transaction will speed up the securitisation market at the end of this year.

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