Credit

The North American gas transmission and distribution (T&D) industry looks healthy for the rest of this year and into 2008, but the credit crunch threatens to slow down capital spending and the acquisition market, according to Moody’s Investors Service.

The joint powers authority financing arm for public power in Southern California received an “AA-” credit rating for its $511.5 million revenue bonds to fund an aggressive long-term natural gas purchase program for five munis, including the Los Angeles Department of Water and Power (LADWP). Fitch Ratings gave the offering a stable outlook. Southern California Public Power Authority (SCPPA) will use the proceeds to acquire a 30-year natural gas supply from J. Aron & Co., including five nearly identical prepaid gas sales agreements with the SCPPA municipal utilities involved. The bonds are expected to be priced soon with Goldman Sachs as the sole manager, Fitch said. As the tax-exempt intermediary in the deal, SCPPA will sell the gas to the five electric munis at a price Fitch described as being equal to the first-of-the-month market index minus a fixed discount pursuant to nearly identical gas supply agreements with each project participant. “The price risk between the prepaid [fixed] price of natural gas paid by SCPPA to J. Aron at the bond closing and the index price that will be received by SCPPA from the project participants over the next 30 years will be hedged by a commodity swap between SCPPA and AIG-FP Broadgate, as described elsewhere,” Fitch said. “In addition, SCPPA will enter into an interest rate swap with J. Aron.

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.

A-credit-rated Southern California Public Power Authority (SCPPA) said it has completed a $65.1 million purchase of 67 Bcf of Barnett Shale reserves for five California public sector utilities. The majority of the gas will fuel the new 300 MW Magnolia power project in Burbank, CA, as well as other local power plants.

A-credit-rated Southern California Public Power Authority (SCPPA) said it has completed a $65.1 million purchase of 67 Bcf of Barnett Shale reserves for five California public sector utilities. The majority of the gas will fuel the new 300 MW Magnolia power project in Burbank, CA, as well as other local power plants.

Agreeing with the intent of lowering financial risk and raising credit ratings, the Idaho Public Utilities Commission Wednesday approved Avista Corp.’s proposal to reorganize, creating a still-to-be-renamed holding company for Avista Utilities, which serves electricity and natural gas customers in northern Idaho. The PUC noted that last year’s repeal of the federal Public Utility Holding Company Act (PUHCA) allows multi-state utilities like Avista to form holding companies.

Given Aquila’s inability to achieve an investment-grade credit rating, the staff of the Kansas Corporation Commission (KCC) is recommending that the commission order the company to either divest its Kansas gas utility or establish a corporate structure with ring fencing that protects the utility and its ratepayers in the event of an adverse regulatory action in another state. Aquila has requested that it be allowed to file a response to the staff report by May 1.

After a lull following the post-Enron credit crisis, corporate merger and acquisition (M&A) activity once again is on the rise, driven by interest in regional market scale and rising cost pressures among several other factors, according to a new report by Merrill Lynch analysts Steve Fleishman, Jonathan Arnold and Elizabeth Parrella.

Cheniere Energy, Inc. announced late Friday that its indirect, wholly owned subsidiary, Cheniere LNG Holdings, LLC has engaged Credit Suisse to arrange a proposed $500 million Senior Secured Term Loan Facility. Holdings owns Cheniere’s 100% equity interest in Sabine Pass LNG, LP. and Cheniere’s 30% limited partner equity interest in Freeport LNG Development, LP., each of which owns an LNG receiving terminal project that is currently under construction.