Ratings

In a Wholesale Power Market Update issued last week, Fitch Ratings said that over the next 12 months, natural gas prices will remain volatile, fluctuating between $6 and $10/MMBtu. Longer-term, Fitch expects gas prices to average between $5-6/MMBtu.

Calling the recent pace of oil and gas producer merger activity “breathtaking,” Standard & Poor’s Ratings Services (S&P) weighed in with the reasons for the robust deal activity.

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.

Calling the recent pace of oil and gas producer merger activity “breathtaking,” Standard & Poor’s Ratings Services (S&P) weighed in with the reasons for the robust deal activity.

Fitch Ratings assigned a AA- rating on $240 million in gas revenue bonds issued by Natural Gas Acquisition Corp. to pay Merrill Lynch Commodities for a 15-year supply of natural gas to serve the City of Clarksville, TN, and Humpherys County Utility District of Humpherys County, TN. Fitch said the rating is based on the transaction’s structure, which includes a corporate guarantee, insurance policies, operating reserves, and certain legal provisions. These factors secure the revenue streams and other funds that pay debt service on the bonds, and under certain circumstances, the full redemption price. The gas volumes represent a portion of the forecasted needs of the two gas distribution utilities. In addition to securing a gas supplier and gas supply for 15 years, the transaction benefits the customers by locking in natural gas costs at a discount to the regional market index price. Under separate gas supply contracts, NGAC will sell a predetermined amount of natural gas to the customers, who are both obligated to take-and-pay for gas as long as it is delivered. The price of the natural gas sold to Clarksville and Humphreys is structured to generate revenues sufficient to pay debt service on the bonds. Bondholders have a security interest in the payments from the customers to NGAC and in the scheduled natural gas from Merrill Lynch Commodities. A Merrill Lynch corporate guarantee secures performance by MLCI, including the delivery of gas.

Standard & Poor’s Ratings Services last Friday affirmed the “BB+” corporate credit rating of Spokane, WA-based Avista Corp, citing the stability of the company’s utility operations as the primary reason. The outlook is stable, and both the rating and outlook also take into account Avista’s higher-risk energy trading and other nonutility operations, S&P said.

Citing high natural gas prices that have curtailed operations of the city-run 484 MW cogeneration power project, Fitch Ratings announced Thursday it decreased the credit rating of senior secured revenue bonds due in 2025 for the City of Klamath Falls, OR, cogeneration project and related assets. The rating was dropped to “B-” from “BB+,” and the rating watch was removed from “Negative.”

Historic high energy prices have Standard & Poor’s Ratings Services raising different issues for the natural gas and coal sectors, according to previews Thursday of special “CreditWeek” reports scheduled to be released next week. For natural gas, the over-concentration of critical infrastructure in the Gulf of Mexico region has been exposed; and for coal, financial and business-risk vulnerability are surfacing despite an 18-month steady run-up in prices, S&P said.

Moody’s Investors Service has launched a review of Burlington Resources Inc.’s debt ratings, which it said was prompted by the producer’s success in replacing reserves and increasing production. Burlington’s “trend of operational success” and “strong financial profile,” has been aided by financial discipline and a “buoyant oil and natural gas price environment.”