THE POWER PLANTS OF AT LEAST FIVE UTILITIES IN NEW England and California get swapped this year for more than $5.3 billion. And happily, those holding bonds on the plants will be given cash for their coupons.

These utilities (see sidebar, "Going Once, Going Twice¼ Sold!") can expect their credit ratings to remain firm or even jump (em although that's debated by analysts. Such improved ratings may surprise market observers led to believe that loss of utility collateral would hurt investment grades.

That plant sales have exceeded book value certainly hasn't hurt expectations for firm credit ratings. The extra cash makes it easier for investor-owned utilities to get around restrictive bond indentures that guarantee bond security, analysts and utility executives say. Meanwhile, because the IOUs are left with solid portfolios of transmission and distribution assets, such utilities are viewed as good risks.

No credit-rating agency seems to have a formula yet, however, for evaluating credit-worthiness of what soon may be "non-generating" utilities. Some say no recipe is needed.

Paying Down Debt

Utility executives and analysts report unanimously that the IOUs plan to retire the debt once the sales are approved and closed.

Bob Seega, investor relations director for New England Electric System, sees direct effects on those holding bonds of New England Power Co., the NEES company that auctioned about $1.6 billion in generating assets. The utility's First Mortgage bonds carry staggered maturities, from short-term to 30 years.

"This constitutes, under our indenture, a sale of substantially all the property of New England Power Co," Seega says. Therefore the sale makes the utility's indenture null and void.

That means for all outstanding debt, cash is put up with the mortgage trustee. The cash covers payment of the interest on the bonds until they are either called or matured. At the end of maturity, bondholders receive their principal payment, just as they would if the company had kept the bonds outstanding.

"It isn't the case that you're leaving the bondholders with a leaky ship of state," says M. Douglas Dunn of Milbank, Tweed, Hadley & McCloy. "They're getting, in fact, cash and more."

"The only tricky part is if the bonds are callable before maturity," Seega says. "The issue there with the fixed-income analyst is: 'Are you going to call those bonds at a premium price or at a par call?'"

In some cases, special circumstances allow a company to call bonds at par, or face, value. That won't be the case at NEES, however.

"When we defease the indenture, we will pay the general redemption price or a premium price for those couple of series that are callable prior to maturity," Seega says. "In the case of defeasance, you get 100 percent of your money¼ The bondholders get made completely whole."

The plan has been filed with the mortgage trustee and trustee's counsel. "It's really what's required under our indenture," Seega says. "Utility indentures tend to have some similarities, but they all can be a little unique."

The NEES sale only puts a small dent in its $5-billion asset base.

At Pacific