A new breed of bond

Issuance of rate reduction bonds by utilities may be down, but the market is preparing for a surge in new asset-backed securities derived from the stranded cost model. By Catherine Lacoursiere

After a boom in securitised stranded assets over the last seven years, issuance has been down. Also known as rate reduction bonds (RRBs), Barclays Bank says $30 billion of these off-balance sheet securities have been issued since 1997, $18.8 billion of which remain outstanding. The securities were conceived to help utilities recover the stranded costs of older plants rendered uneconomical by more efficient plants but who are no longer able to recover those costs through rate-based mechanisms

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