With roiling financial markets spilling over to public-sector bond market players, Standard & Poor’s Ratings Services (S&P) again Wednesday issued negative outlooks for some of the counterparties while affirming the ratings on $1.4 billion in bonds by two California municipal utility pre-paid natural gas deals. The ratings firm first commented last week (see Daily GPI, Feb. 6).
Long Beach, CA, and the Southern California Public Power Authority (SCPPA) separately put together the deals, and AIG Matched Funding Corp (AIGMFC) is the counterparty in both deals that drew S&P’s negative outlook.
Long Beach Bond Finance Authority is the city’s vehicle for financing a 30-year pre-pay supply deal that is supposed to satisfy 80-90% of city-run utility’s 12-13 Bcf annual gas demand with terms that were designed to keep its retail rates below the surrounding Sempra Energy utilities for the next three decades. The deal was put together with Merrill Lynch Commodities Inc. and was unique in that it is not priced just to the California-Arizona border prices for natural gas.
S&P said the ratings on the pre-pay transaction are tied to the Long Beach financing arm’s gas supplier, and that Merrill Lynch & Co. Inc. guarantees it supply unit’s obligations under the transaction. The rating agency said in the future it could revise the ratings or outlook on Long Beach’s bonds — $635.7 million, series 2007A and $251.7 million, series 2007 B. AIGMFC provides the guaranteed investment contract, placing funds in a debt service account.
SCPPA’s rating on the pre-pay is tied to its gas supplier, J. Aron & Co., and Goldman Sachs Group Inc. is guaranteeing that supplier’s obligation, and as it did with the Long Beach deal, S&P said it could revise the ratings on two sets of related bonds — $303 million, series 2007A, and $201.5 million, series 2007B. Like in Long Beach, AIGMFC provides the guaranteed investment contract, depositing funds in debt service and working-capital accounts, S&P said.
SCPPA did an index-minus pre-pay deal last fall for some of its smaller members. Under the deal, Goldman Sachs handles a massive pre-payment for future gas supplies stretching over the next 20 to 30 years, finalizing the financing and operational details for a number of munis in a pre-pay that could totaled $500 million.
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