The natural gas financing unit for the Sacramento Municipal Utility District (SMUD) received a credit rating upgrade (“AA-” from “A+”) from Standard & Poor’s Ratings Services (S&P) Thursday covering more than $750 million in fixed- and indexed-rate bonds. S&P set the outlook at “stable” for the Northern California Gas Authority, a special purpose vehicle for financing long-term gas purchases for SMUD’s power generation needs. The gas authority was created to issue bonds, the proceeds of which fund prepayment for 146 Bcf of gas scheduled for delivery over the next 20 years. The authority sells the gas supplies to SMUD at first-of-the-month index price, minus a predetermined discount. In turn, the gas authority’s floating index-based revenues from SMUD are exchanged through a commodity swap with the Royal Bank of Canada (RBC) for fixed amounts needed to pay interest and principal on the bonds. S&P said the upgrade reflects a July 30 upgrade of Morgan Stanley (AA-/Stable/A-1+), which guarantees the obligation of the gas authority’s supplier, Morgan Stanley Capital Group. Two other counterparties to the deals figured in the ratings change, S&P said: Royal Bank of Canada (RBC: AA-/Positive/A-1+) and MBIA Insurance Corp. (AAA/Stable). “The outlook could be revised to negative if the outlook on Morgan Stanley or the Canadian bank is revised to negative, and the ratings could be lowered if the ratings on Morgan Stanley, RBC, or MBIA are lowered to below ‘AA-‘,” said S&P analyst Kenneth Farer.

©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.