AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' rating on the Municipal Energy Acquisition Corp.'s (MEAC) series 2006 A&B bonds.
The Rating Outlook is Stable.
SECURITY
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 party.
KEY RATING DRIVERS
COUNTERPARTY PAYMENT OBLIGATIONS: The rating on the MEAC revenue bonds reflects the structured nature of the prepaid energy transaction and Fitch's analysis of the principal transactional counterparties, including JPMorgan Chase & Co. (JPM; Issuer Default Rating (IDR) 'A+'/Stable Outlook) and BNP Paribas (BNP; IDR 'A+'/Stable Outlook).
STRONG GAS SUPPLIER SUPPORT: Gas is supplied to MEAC by J.P. Morgan Ventures Energy Corporation (JPMVEC), whose obligations are guaranteed by JPM.
COLLATERALIZED COMMODITY SWAP OBLIGATIONS: BNP is the commodity swap provider. BNP's obligations under the commodity swap agreement have been partially cash collateralized.
BROAD SUPPORT FROM JPM: JPM provides further enhancement through a mandatory receivables purchase agreement. This mitigates the credit risk associated with various other counterparties in the transaction, including the gas purchasers and the guaranteed investment contract providers.
WEAK LINK COUNTERPARTY: The rating on the bonds is driven by the credit quality of the weakest counterparty whose default risk is not otherwise mitigated. The rating of the MEAC revenue bonds reflects the credit quality of the JPM and BNP, which are also the current constraint on the transaction's rating.
RATING SENSITIVITIES
The long-term rating on Municipal Energy Acquisition Corp.'s 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. Therefore, unless otherwise mitigated, shifts in the rating or credit quality of JP Morgan Chase & Co. or BNP Paribas below the current rating on the bonds would result in a downgrade. Conversely, shifts in the rating or credit quality of both relevant counterparties above the current rating on the bonds would result in an upgrade.
CREDIT PROFILE
The proceeds of the MEAC bonds were used to prepay the gas supplier (JPMVEC) for a specified quantity of natural gas, deliverable to the issuer over the 12-year life of the bonds. Bondholders rely on the supplier to deliver the gas or make a cash payment to the issuer over the life of the bonds. The issuer, in turn, delivers the gas to the purchasing utilities consisting of 19 municipal gas utilities located throughout Alabama, Kentucky, Louisiana, Mississippi and Tennessee. The purchasing utilities are required to make a payment to the issuer for the gas delivered which together with other payments, including those required under the commodity swap agreement, should be sufficient to meet debt service requirements.
COMMODITY SWAP AGREEMENT TO HEDGE PRICE RISK
To hedge the risk of changes in the price of natural gas, MEAC entered into a commodity swap agreement with BNP, exchanging an average daily gas index price for a fixed price equal to debt-service requirements. JPMVEC has separately entered into a matching swap agreement with BNP, exchanging a fixed price for an average daily gas index price.
Following BNP's downgrade below 'AA-', BNP was required to either post sufficient collateral or assign all of its rights and obligations to an acceptable party. During September 2012, MEAC executed a collateral agreement with BNP requiring BNP to post collateral covering up to two months of settlement payments. If BNP is downgraded further to below 'A-', it must assign all of its rights and obligations to a party rated 'AA-' or higher within 30 days.
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 JPMVEC (since financial payments will be due by the supplier, in the event of non-delivery of gas for any reason, including during force majeure events).
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006
Criteria for Rating Prepaid Energy Transactions (pub. 08 Jul 2016)
https://www.fitchratings.com/site/re/884518
U.S. Municipal Structured Finance Criteria (pub. 23 Feb 2015)
https://www.fitchratings.com/site/re/862222
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015920
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015920
Endorsement Policy
https://www.fitchratings.com/regulatory
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