NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the rating on the gas revenue bonds issued by Roseville Natural Gas Financing Authority (RNGFA) listed below:
--$192.9 million gas revenue bonds, series 2007 at 'A'.
The Rating Outlook is Stable.
The bonds are special obligations of the RNGFA and are payable solely from revenues and other funds pledged under the 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 party.
Given the structured nature of prepaid natural gas transactions and the different components of pledged revenue, ratings generally reflect Fitch's assessment of the relevant counterparties and structural enhancements. The principal counterparties in the RNGFA Series 2007 transaction include Bank of America Corporation (BAC; rated 'A' with a Stable Outlook by Fitch), JPMorgan & Chase Bank, N.A. (JPM; rated 'A+'; Outlook Stable) and Wells Fargo Bank, N.A. (rated 'AA-'; Outlook Stable). The sole gas purchaser is the electric distribution system of the City of Roseville, CA (electric system revenue bonds rated 'A+'; Outlook Stable). The obligation of the city is supported by an insurance policy from Financial Security Assurance (FSA; not rated by Fitch).
KEY RATING DRIVERS
SOLID GUARANTEED GAS SUPPLIER: Natural gas is supplied by Merrill Lynch Commodities, Inc. (MLCI), whose obligations are guaranteed by BAC. In the event MLCI fails to deliver gas for any reason, including force majeure, BAC is required to pay specified amounts to Roseville Natural Gas Financing Authority.
SINGLE STRONG GAS PURCHASER: The sole gas purchaser is the city of Roseville (the city), which exhibits a strong credit profile. Fitch does not believe that the FSA insurance policy, which provides payment in the event of the purchaser's failure to pay for delivered gas, provides additional rating enhancement to the structure.
STRONG COMMODITY SWAP PROVIDER: JPM is the commodity swap provider and exhibits a strong credit profile.
SOLID INVESTMENT AGREEMENT PROVIDER: Wells Fargo Bank, N.A. (formerly Wachovia Bank, N.A.) is the forward purchase agreement provider and exhibits a strong credit profile.
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 the remaining counterparties in the structure, and their credit quality.
The proceeds of the RNGFA series 2007 bonds were used to prepay the gas supplier (MLCI) for specified quantities of natural gas, deliverable to the issuer over approximately 20 years. Bondholders rely on the supplier to deliver the gas or make a cash payment to the issuer in lieu of delivery over the life of the bonds. RNGFA, in turn, delivers the gas to the city, who is obligated to purchase delivered gas as an operating expense of its electric distribution utility.
FSA provides a customer insurance policy to support a potential payment shortfall by the city, pursuant to the gas purchase agreement. However, Fitch does not believe that the insurance policy provides additional rating enhancement to the structure.
COMMODITY SWAP AGREEMENT TO HEDGE PRICE RISK
To hedge the risk of changes in gas prices, RNGFA has entered into a commodity swap agreement with JPM. The agreement involves exchanging a monthly index price for a fixed price. JPM has separately entered into a back-to-back swap agreement with MLCI, exchanging a fixed price for a floating natural gas 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 MLCI. Financial payments are due from the gas supplier in the event of gas non-delivery for any reason. Payments due from RNGFA, together with those required under the debt service fund agreement, are sufficient to meet debt service requirements.
In the event the transaction is terminated early, payments due from MLCI, together with other available funds, are expected to equal an amount sufficient to pay off the bonds plus accrued interest. The funds required to pay the termination payment will be provide by MLCI and guaranteed by BAC.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Criteria for Rating Prepaid Energy Transactions' (July 26, 2013);
--'Roseville Electric Fund, California' (Oct. 28, 2013).
Applicable Criteria and Related Research:
Roseville Electric Fund, California
Criteria for Rating Prepaid Energy Transactions