NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings on the following bonds issued by Main Street Natural Gas, Inc. (MSNG):
--$390.4 million gas project revenue bonds series 2006A at 'A+';
--$390.2 million gas project revenue bonds series 2006B at 'A'.
The Rating Outlook for the series 2006A bonds is Stable.
The Rating Outlook for the series 2006 B bonds was revised to Negative from Stable on March 28, 2014 reflecting Fitch's decision to affirm the Long-term Issuer Default Rating (IDR) of Bank of America Corp. (BAC) at 'A' and to revise the Rating Outlook for BAC to Negative from Stable.
The series 2006 A & B 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.
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 MSNG Series 2006 A & B transactions include JP Morgan Chase & Co. (JPM: rated 'A+' with a Stable Outlook by Fitch), BAC, Bank of Montreal (rated 'AA-' with a Stable Outlook) and Royal Bank of Canada (rated 'AA' with a Stable Outlook).
Gas purchase obligations reside with five southeastern municipal utilities - the Municipal Gas Authority of Georgia (rated 'A+' with a Stable Outlook), Patriots Energy Group, Southeast Alabama Gas District, the Municipal Electric Authority of Georgia (rated 'A+' with a Stable Outlook) and the City of LaGrange, GA. Gas purchaser obligations are supported by Assured Guaranty Municipal Corp. (AGM).
KEY RATING DRIVERS
MULTIPLE GAS PURCHASERS: In both transactions (Series 2006 A & B) gas is purchased by the five municipal utility participants, which exhibit varying, but solid credit profiles that support the current ratings on the bonds.
NO RATING ENHANCEMENT: Fitch does not believe that the AGM surety bonds, that provide payment in the event of a purchaser's failure to pay for delivered gas, provide additional rating enhancement to the structure.
CASH FUNDED OPERATING RESERVES: Each transaction structure is enhanced by cash funded operating reserves that are required to be maintained and may be used to pay debt service if other funds are insufficient.
GAS SUPPLIER GUARANTORS: The gas supplier guarantors for the 2006 A and B transactions exhibit solid credit quality. In the series 2006 A transaction, gas is supplied by J.P. Morgan Ventures Energy Corporation (JPMVEC), whose obligations are guaranteed by JPM. In the series 2006 B transaction, gas is supplied by Merrill Lynch Commodities, Inc. (MLCI), whose obligations are guaranteed by BAC.
SOLID COMMODITY SWAP PROVIDERS: The commodity swap providers include Bank of Montreal (Series 2006 A) and Royal Bank of Canada (Series 2006 A), and JPM (Series 2006 B), all of which exhibit solid credit profiles.
INVESTMENT PROVIDER OBLIGATIONS COLLATERALIZED: Credit Agricole (rated 'A' with a Stable Outlook) is the debt service fund guaranteed investment contract provider for both the Series 2006 A & B bonds. Credit Agricole's obligations under the contracts have been collateralized.
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 Main Street bonds were used to prepay the gas suppliers (JPMVEC and MLCI) for specified quantities of natural gas, deliverable to the issuer over the 15-year life of the bonds. Bondholders rely on the suppliers to deliver the gas or make cash payments to the issuer in lieu of delivery over the life of the bonds.
The issuer, in turn, delivers the gas to the purchasing utilities. 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 swap agreements, are expected to be sufficient to meet debt service requirements.
Should a supplier fail to deliver gas or pay an equivalent amount of money, the supplier or its guarantor 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'.
Applicable Criteria and Related Research:
--'Criteria for Rating Prepaid Energy Transactions' (July 10, 2014);
--'Prepay Gas Transactions: Focus Shifts to Restructuring' (April 2, 2014).
Applicable Criteria and Related Research:
Criteria for Rating Prepaid Energy Transactions
Prepay Gas Transactions: Focus on Counterparty Risk