Fitch Ratings affirms Southern California Public Power Authority's
(SCPPA) outstanding $313.49 million series 2007 A and B gas project
revenue bonds at 'A'.
The Rating Outlook is Stable.
The bonds are special obligations of the issuer, payable solely from
revenues and other funds pledged under the trust agreement. Revenues are
derived from the fulfillment of the obligations from each of the
transactions 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 in the SCPPA Project No. 1
transaction currently include Goldman Sachs Group, Inc. (GSG; rated
'A'/Outlook Stable), Mitsubishi UFJ Securities International plc (MUFJ;
not rated), U.S. Bank NA (USB; rated 'AA-/Outlook Stable) and the five
municipal gas purchasers - Anaheim, CA ('AA-'/Outlook Stable), Burbank,
CA, Colton, CA, Glendale, CA (A+'/Outlook Stable), and Pasadena, CA
KEY RATING DRIVERS
MULTIPLE ROLES FOR GAS SUPPLIER: Gas is supplied to SCPPA by J. Aron &
Company, who also serves as the transaction interest rate swap provider
and debt service account investment agreement provider. Under any event
of termination including a payment default by SCPPA or the persistent
failure of J. Aron to deliver gas, J. Aron is required to make a
termination payment sized in an amount to equal or exceed the cost of
redeeming all outstanding bonds. All of J. Aron's obligations are
guaranteed by GSG.
STRONG GAS PURCHASERS: Delivered gas is purchased by the five municipal
participants, which collectively exhibit credit fundamentals that
support the current rating. Additional credit support for the cities of
Burbank, Colton, and Pasadena is provided by a mandatory receivables
purchase agreement (RPA) with J. Aron. Fitch does not believe that the
debt service reserve surety provided by National Public Finance
Guarantee Corp. (NPFG) provides any rating enhancement to the structure.
COMMODITY SWAP PROVIDER CUSTODIAL ARRANGEMENT: MUFJ is the transaction
commodity swap provider. However, credit exposure to MUFJ is mitigated
pursuant to a custodial arrangement that insulates bondholders from any
failure by MUFJ to pay under its swap agreement with SCPPA.
CHANGE IN COUNTERPARTY RATINGS: The long-term rating on Southern
California Public Power Authority's gas project revenue 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 is determined by the weakest of the
following rated counterparties: Goldman Sachs Group, Inc. and the
utility systems of Anaheim, CA and Glendale, CA.
SCPPA issued the Project No. 1 bonds in October 2007 to prepay for a
specified supply of natural gas to be delivered by J. Aron over a period
of approximately 22 years. Pursuant to separate project Gas Supply
Contracts (GSC), SCPPA sells the natural gas to the five project
participants each of which are obligated to purchase delivered gas as an
operating expense of their respective systems.
COMMODITY SWAP AGREEMENT TO HEDGE PRICE RISK
To hedge the risk of changes in gas prices, SCPPA entered into separate
commodity swap agreements. These agreements were novated to MUFJ in 2013
and a custodial arrangement has been implemented on the "back-end"
commodity swap agreement between MUFJ and J. Aron. The custodial
agreement provides for all required payments made by J. Aron on the
"back-end" swap to be remitted directly to SCPPA in the event that MUFJ
fails to make the corresponding required payment to SCPPA on the
"front-end" commodity swap. In short, the arrangement mitigates the risk
on non-payment by MUFJ as swap counterparty.
STRUCTURE DESIGNED FOR TIMELY PAYMENT
The bonds are structured with provisions which provide for timely
payment of debt service, regardless of changes in natural gas prices or
transportation costs, or even the physical delivery of gas by J. Aron
(since financial payments will be due by the supplier, in the event of
non-delivery of gas for any reason, including during force majeure
SCPPA entered into an interest rate swap agreement with J. Aron
concurrent with the issuance of the 2007B, which hedges the interest
rate risk on the LIBOR floating bonds into a fixed rate paid by SCPPA.
Payments due from J. Aron (guaranteed by GSG) upon early termination,
together with other available funds, are also expected to equal an
amount sufficient to pay off the bonds plus accrued interest.
Additional information is available at 'www.fitchratings.com'.
Criteria for Rating Prepaid Energy Transactions (pub. 10 Jul 2014)
U.S. Municipal Structured Finance Criteria (pub. 23 Feb 2015)
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'.
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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
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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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