Fitch Ratings has affirmed the 'A' rating for the following M-S-R Energy
Authority (the authority) gas project revenue bonds:
--$201.0 million prepaid gas revenue bonds series 2009A;
--$500.2 million prepaid gas revenue bonds series 2009B;
--$200.4 million prepaid gas revenue bonds series 2009C.
The Rating Outlook is Stable.
The bonds are special obligations of the issuer, payable solely from
revenues and other funds pledged under each indenture. Revenues are
derived from the fulfillment of obligations from each of the
transaction's varied counterparties. Bondholders also rely on funds
pledged under the indenture, which are typically invested by a third
Given the structured nature of prepaid natural gas transactions and the
different components of pledged revenues, ratings generally reflect
Fitch's assessment of the relevant counterparties and structural
enhancements. The principal counterparties include Citigroup Inc.
(Citigroup; 'A'/ Outlook Stable) and J.P. Morgan Chase Bank, N.A. (JPM;
'AA-'/Outlook). Gas purchase obligations reside with the Modesto
Irrigation District (MID; 'A+'/Outlook Stable), the City of Santa Clara
(electric revenue bonds 'A+'/ Outlook Stable) and the City of Redding
(CA) (electric system bonds 'A+'/ Outlook Stable) - and are supported by
surety bonds from Assured Guaranty Corp (Not Rated by Fitch).
KEY RATING DRIVERS
GUARANTEED GAS SUPPLIER: The rating on the bonds is currently driven by
the credit quality of Citigroup, the lowest rated of the relevant
counterparties. Gas is supplied by Citigroup Energy Inc. (CEI), whose
obligations are guaranteed by Citigroup. Forward delivery agreements
used in the series A and B transactions are also guaranteed by Citigroup.
SOLID COMMODITY SWAP PROVIDER: The commodity swap provider is JPM, which
exhibits a solid credit profile.
GAS PURCHASERS: The gas purchasers are MID, the City of Santa Clara and
the City of Redding, all of which exhibit strong 'A+' credit quality.
The purchases of gas are subject to take-and-pay agreements that require
the purchases to be made as operating expenses of the utility.
SEPARATE REVENUE PLEDGES: Each series of bonds is secured by a separate
revenue pledge and separate gas supply agreements with MID (Series A),
Santa Clara (series B) and Redding (series C).
NO RATING ENHANCEMENT: Fitch does not believe that the Assured Guaranty
Corp. surety bonds supporting the obligations of the gas purchasers
provide additional rating enhancement to the structure, given the strong
credit quality of the three respective gas purchasers.
CHANGE IN COUNTERPARTY RATINGS: The Long-term rating on the M-S-R Energy
Authority Project bonds will continue to be determined by Fitch's
assessment of the transaction structure, the role of the counterparties
in the structure, and their credit quality. The current rating for each
series is determined by the weakest of the following rated
counterparties: Citigroup, J.P. Morgan Chase Bank, N.A. and the relevant
gas purchaser - Modesto Irrigation District (Series 2009A), the City of
Santa Clara (Series 2009B) and the City of Redding (Series 2009C).
Bond proceeds were used to prepay the gas supplier (CEI) for a specified
quantity of natural gas, deliverable to the issuer over the 30-year life
of the bonds. The issuer, in turn, delivers the gas to the three
respective purchasing electric utilities. The gas purchasers are only
obligated to make a payment if gas is physically delivered. Fitch's 'A'
rating reflects bondholder reliance on the gas supplier to deliver the
gas or make a cash payment to the issuer over the life of the bonds.
SEPARATE GAS PURCHASE AGREEMENTS AND PLEDGED REVENUE
The purchasing utilities are required to make payments to the issuer for
the gas delivered, which together with other payments including those
required under the commodity and interest rate swap agreements, should
be sufficient to meet debt service requirements. Gas payments are made
by the utilities pursuant to separate gas purchase agreements and
therefore only secure the repayment of their respective bonds. The
series A bonds were issued to prepay for gas to be delivered to MID; the
series B bonds for gas to be delivered to Santa Clara; and the series C
bonds for gas to be delivered to Redding.
Should the supplier fail to deliver gas or pay an equivalent amount of
money, the gas supplier or its guarantor (Citigroup Inc.) is required to
make a termination payment to the trustee that, together with other
available funds, is sized to be sufficient to redeem outstanding bonds.
Additional information is available at 'www.fitchratings.com'.
Criteria for Rating Prepaid Energy Transactions (pub. 10 Jul 2014)
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
Dodd-Frank Rating Information Disclosure Form
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
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