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I've come across the term Transition Bond Company, and I'm trying to figure out what it is – in relatively plain English, since I lack any legal background whatsoever.

The context in which I've seen the term used is in connection to regulated utility companies in the US (e.g., electric companies).

Any explanation?

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"Transition bonds" are debt for which the collateral is "transition property."

Periodically U.S. states authorize utilities to levy a charge on individual consumer bills. The reasons they may do so are varied (e.g. to compensate a former monopolist during the transition to a competitive utilities market).

The right to levy this charge now and in the future is a type of (transition) property. Since this right has value in the form of a future stream of revenue, it can serve as collateral when debt it taken on (here in the form of bonds).

The utility with the property rights can form a subsidiary called a "transition bond company" that handles the bond issuance.

Here are a few examples of state laws to the above effect.

Massachusetts

Connecticut

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  • This is excellent; I had the general impression, but this makes it clearer. Would the SEC filings for a transition bond company refer to the particular transition property that is being issued? Or could I find that elsewhere? – mfrankli Jul 14 '15 at 1:51
  • @mfrankli Sometimes the state laws make clear what types of charges are authorized, so you might look there first. I'm not a pro on SEC filings, though. Here's another interesting point: sometimes the states use the charges as a mechanism to fund their own treasuries. – Pat W. Jul 14 '15 at 12:26

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