Perspective

Fortnightly Magazine - October 1 1998
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ANYONE AT ALL CLOSE TO the securitization scene agrees on at least one thing: The referenda in California and Massachusetts seeking to roll back restructuring have cast such a pall over the bond issues put out late last year by the California electric utilities to finance their stranded costs that any new issuer hoping for the same 'AAA' rating may as well get prepared to sacrifice his or her firstborn to the rating agencies.

One major firm called a press conference to confirm its ratings, but the call betrayed more worry than confidence, for those bonds had already diverged substantially from where they had first settled in trading after the offering was concluded. Everyone who bought the bonds and then sold within the first six months came out well ahead; but all that's changed now. The California bonds may have been oversubscribed by 10 or 15 times, yet the two ballot initiatives have dampened that initial enthusiasm.

Of course, bond counsel and the agencies continue to provide assurances that no harm will come even if the voters do adopt the proposals. They reason that the Constitution of the United States and the Constitution of the State of California will keep the bondholders whole. Yet the question on Wall Street, for buyers at either above or below par, is the question the whole industry is struggling with right now: Is the right measurement par (book) value or market value? What does it mean, to be made or kept whole? As Henny Youngman used to say: "Compared to what?"

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