NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the rating on the following bonds issued by SA Energy Acquisition Public Facility Corporation (SA Energy):
--$381.6 million gas supply revenue bonds, series 2007 at 'A'.
The 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'/Stable Outlook), Royal Bank of Canada (RBC; rated 'AA'/Stable Outlook), Depfa Bank plc (rated 'BBB+'/Negative Outlook)and the city of San Antonio, Texas' electric and gas system (CPS; rated 'AA+'/Stable Outlook).
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 Bank plc (rated 'BBB+'/Negative Outlook) related to the debt service account are fully collateralized.
STRONG GUARANTEED 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 contributed approximately 27% of gas supply requirements during fiscal 2015 and is delivered at a meaningful discount to monthly index pricing.
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. Although CPS' obligations are supported by a debt service reserve fund surety bond provided by Syncora Guarantee, Inc., the surety bond provides no 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 agreement 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'.
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