Financing

A $680 million financing closed Thursday for the proposed 1 Bcf/d Manzanillo liquefied natural gas (LNG) receiving terminal on the West Coast of Mexico in the state of Colima, according to the coalition lenders on the deal.

Last year’s global natural gas and oil transactions hit a record, but the late-year financial crisis and falling economic conditions resulted in a considerable reduction in the total value of transactions by year’s end, PricewaterhouseCoopers LLP (PwC) reported last week.

The Northern California Gas Authority (NCGA), a financing conduit for public power sector generators, has felt the domino effect of the Wall Street credit meltdown, being placed on “watch for a downgrade” of its “A1” credit rating Oct. 16 by Moody’s Investors Service, following the credit agency’s downgrade of Morgan Stanley earlier in October. Some $758 million of series A and B 2007 bonds held by the gas authority are tied to Morgan Stanley and other Wall Street firms caught in the credit collapse.

The Northern California Gas Authority (NCGA), a financing conduit for public power sector generators, has felt the domino effect of the Wall Street credit meltdown, being placed on “watch for a downgrade” of its “A1” credit rating last Thursday by Moody’s Investors Service, following the credit agency’s downgrade of Morgan Stanley. Some $758 million of series A and B 2007 bonds held by the gas authority are tied to Morgan Stanley and other Wall Street firms caught in the credit collapse.

The public utilities commissions of New Hampshire and Maine both approved Unitil Corp.’s proposed acquisition of Northern Utilities Inc. and Unitil’s financing plans for the transaction. Regulatory approval is pending in Massachusetts. In February Unitil agreed to purchase Northern Utilities and Granite State Gas Transmission Inc. from NiSource Inc. for $160 million plus an estimated $25 million for natural gas storage inventory and other working capital items (see NGI, Feb. 25). In August, Unitil filed settlement agreements with the utility regulators in Maine and New Hampshire for the proposed acquisition. Northern Utilities is a natural gas distribution utility serving 52,000 customers in 44 communities in Maine and New Hampshire. Granite’s operations consist of 86 miles of federally regulated gas transmission pipeline, primarily in Maine and New Hampshire. Granite’s principal business is delivering gas transportation services to Northern and providing access to interstate gas pipeline supplies. Upon consummation of the transaction, both Northern and Granite would become wholly owned subsidiaries of Unitil Corp. The transaction is scheduled to close by the end of the year.

Fortis Merchant Banking led a $280 million senior secured financing and signed a 29 Bcf, 10-year financial fixed-price gas agreement with Sherbino I Wind Farm LLC, a joint venture in Pecos County, TX, owned by subsidiaries of BP Alternative Energy North America Inc. and NRG Energy Inc. The hedge was designed to accommodate wind intermittency risk and will provide Sherbino with greater revenue stability. Fortis has structured, underwritten and will begin to syndicate the credit facility, which will be converted into a 15-year senior secured term loan at the onset of commercial operations scheduled to begin during the second half of 2008. Fortis Energy Marketing and Trading (FEMT) provided a fixed gas hedge based on forward notional heat rates. The hedge agreement begins Jan. 1, 2009 and runs through 2018. FEMT structured the transaction; terms of the hedge were not disclosed. “The Sherbino I Wind Farm transaction complements the portfolio of hedge transactions Fortis has executed for wind project developers while meeting the requirement of both sponsors and creditors with the backing of Fortis’ ‘AA-‘ credit,” said David Duran, managing director of origination and marketing at Fortis. Currently under construction, the Sherbino I Wind Farm is a 150 MW project that consists of 50 Vestas V90s turbines. FEMT was created when Fortis acquired Cinergy Marketing & Trading from Duke Energy in late 2006 (see Daily GPI, June 28, 2006).

The joint powers authority financing arm for public power in Southern California received another “AA-” credit rating from Standard & Poor’s Ratings Services (S&P) for its $511.5 million revenue bonds. Proceeds from the bond sales will be used to fund an aggressive long-term natural gas purchase program for five munis, including the Los Angeles Department of Water and Power and Southern California Public Power Authority (SCPPA), which 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. S&P noted that the stable outlook reflects the outlook on Goldman Sachs. Fitch Ratings gave the offering a stable outlook last week (see Daily GPI, Oct. 1).

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 agreement by Dallas-based TXU Corp. and backers of a $45 billion buyout of the Texas utility to drop plans for eight coal-fired power plants and cut consumer rates isn’t quite the giveback it seems when one considers what the plants’ absence from TXU’s portfolio would do to heat rates.