NEW YORK--()--Fitch Ratings has affirmed the ratings on the following bonds issued by SA Energy Acquisition Public Facility Corporation (SA Energy):
--$566 million gas supply revenue bonds, series 2007 at 'A'.
The Rating Outlook on the bonds is Stable.
The series 2007 bonds are special obligations of the issuer, payable solely from revenues and other funds pledged under the indenture. Revenues are derived from the fulfillment of the 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 party.
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 SA Energy transaction for the series 2007 bondholders include Goldman Sachs Group, Inc. (GSG; rated 'A'/Outlook Stable), Royal Bank of Canada (RBC; rated 'AA'/Outlook Stable), Depfa Bank plc (rated 'BBB+'/Outlook Negative) and the city of San Antonio, Texas' electric and gas system (CPS; rated 'AA+'/Outlook Stable).
KEY RATING DRIVERS:
SOLID GUARANTEED GAS SUPPLIER: Gas is supplied to SA Energy by J. Aron & Company, whose obligations are guaranteed by GSG.
COLLATERALIZED INVESTMENT AGREEMENT OBLIGATIONS: The investment agreement obligations of Depfa related to the debt service account are fully collateralized.
STRONG GUARANTED COMMODITY SWAP PROVIDER: The commodity swap provider is Royal Bank of Canada, Europe Limited (RBCEL). RBCEL's obligations are guaranteed by RBC, which exhibits strong credit quality.
CREDITWORTHY GAS PURCHASER: CPS provides exclusive electric and natural gas utility service to a predominately residential customer base in and around the city of San Antonio, TX. Importantly, gas supplied to CPS via the SA Energy structure is strategic to CPS as it represents 30%-35% of annual supply requirements and is delivered at a meaningful discount to monthly index pricing.
PARTIAL UNWIND HAS NO RATING EFFECT: The proposed retirement of $111.1 million of the outstanding series 2007 bonds will have no effect on the current rating. The retirement of the bonds will occur in conjunction with a corresponding decrease in gas volumes.
CHANGE IN COUNTERPARTY RATINGS: The long-term rating on the bonds will continue to be determined by Fitch's assessment of the transaction structure, the role of each counterparty in the structure, and their credit quality.
The proceeds of the SA Energy bonds were used to prepay for a specified supply of natural gas to be delivered by J. Aron. Pursuant to a separate gas supply contract (GSC), SA Energy sells the natural gas to CPS. Payment for the gas is an operating expense of the CPS utility system. Fitch does not believe that the debt service reserve fund surety bond provided by Syncora Guarantee, Inc. provides any rating enhancement.
COMMODITY SWAP AGREEMENT TO HEDGE PRICE RISK
To hedge the risk of changes in gas prices, SA Energy has entered into a commodity swap agreement with RBCEL, exchanging a monthly index price for a fixed price. J. Aron simultaneously entered into a back-to-back swap agreement with RBCEL, exchanging a fixed price for a monthly index price.
STRUCTURE DESIGNED FOR TIMELY PAYMENT
The bonds are structured with provisions that provide for timely payment of debt service, regardless of changes in natural gas prices or the physical delivery of gas by J. Aron (since financial payments will be due from J. Aron in certain cases of non-delivery of gas).
Payments by CPS for delivered physical gas, together with those required under the commodity swap agreements and Depfa investment agreement, are expected to be sufficient to meet debt service requirements.
Payments due from J. Aron (backed 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'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Criteria for Rating Prepaid Energy Transactions', dated Aug. 7, 2012;
--'Prepay Gas Transactions: Focus on Counterparty Risk,' dated Feb. 23, 2009.
Applicable Criteria and Related Research:
Criteria for Rating Prepaid Energy Transactions
Prepay Gas Transactions: Focus on Counterparty Risk