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Public Service Co. of Oklahoma's $225 million notes cancelled after insurer's expected lackluster earnings
By Sheri Kasprzak
New York, Oct. 19 - Public Service Co. of Oklahoma cancelled its sale of $225 million of 6.25% notes a day after the pricing because the insurer, Financial Guaranty Insurance Co., said it expected to post "adverse earnings," a source familiar with the offering said Friday.
The problem apparently stems, the source said, from a clause in the prospectus that would cause the notes to be cancelled in the event adverse earnings from FGIC.
"I don't know why they went ahead with it before earnings came out," the knowledgeable source noted, adding that he hadn't seen a note cancelled for this reason in 25 years in the business.
The source did note, however, that the mishap had nothing to do with Public Service Co. of Oklahoma.
In an addendum to the term sheet, the issuer noted that FGIC Corp., parent of Financial Guaranty Insurance Corp., announced that its third quarter earnings would be "negatively impacted by the mark-to-market (or fair value) adjustment on Financial Guaranty's insured credit derivative portfolio."
"The announcement stated that the adjustment, which relates principally to transactions that Financial Guaranty has guaranteed in credit default swap form, is expected to produce an unrealized loss of approximately $206 million before taxes for the quarter and to result in a net loss of approximately $65 million for the quarter."
The notes, which had been due Sept. 30, 2047 and rated Aaa by Moody's and AAA by Standard & Poor's, are insured by Financial Guaranty Insurance Co.
The bookrunners were Citigroup Global Markets Inc.; Merrill Lynch, Pierce, Fenner & Smith Inc.; Morgan Stanley & Co. Inc.; and UBS Securities LLC.
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