(By D. Daxton White) Moody's Investors Service recently downgraded ratings of numerous gas prepayment bonds. The bonds were placed under review for downgrade due to the downgrades of Citigroup, Inc., Goldman Sachs Group, Inc., Credit Agricole Corporate & Investment Bank, JPMorgan Chase & Co., Merrill Lynch & Co., Morgan Stanley, BNP Paribas, Royal Bank of Canada and Societe Generale. These entities support certain payment obligations of the bonds.
These downgrades are not unlike when Main Street Natural Gas, Inc. ("Main Street") Gas Project Revenue Bonds, Series 2008A, were downgraded after the Lehman bankruptcy. In that case, Lehman Brothers did not guarantee the bonds but it did guarantee certain payment obligations of the gas supplier.
A list of affected gas prepayment bonds and how each of them is affected by the downgrades described in this announcement is provided below.
Affected Gas Pre-Payment Bonds
(1) Public Energy Authority of Kentucky, Inc. Variable Rate Gas Supply Revenue Bonds, Series 2006A
Moody's has downgraded the long-term and short-term ratings of issue (1) to Baa2/ SG from Baa1/VMIG 3. The long-term rating of the bonds is based upon the credit quality of: (i) BP Corporation North America, Inc. (Baa1) as gas supplier; (ii) Societe Generale (A2) as interest rate swap provider; and (iii) Citigroup Inc. (Baa2/ P-2) as guaranteed investment agreement provider.
The short-term rating of the bonds is based upon the credit quality of BP Corporation North America Inc. as provider of the standby bond purchase agreement (SBPA) and the likelihood of termination of the SBPA. The SBPA automatically terminates upon (i) bankruptcy of BP Corporation North America, Inc. and (ii) nonpayment of principal, interest, redemption price or purchase price of the bonds.
(2) Tennessee Energy Acquisition Corporation Gas Project Revenue Bonds, Series 2006A
Moody's has downgraded the rating of issue (2) to Baa2 from A2. This rating is based upon the credit quality of: (i) Goldman Sachs Group, Inc. (A3) as gas supplier guarantor; (ii) Royal Bank of Canada (Aa3) as commodity swap provider; and (iii) Citigroup Inc. (Baa2/ P-2) as guaranteed investment agreement provider.
(3) American Municipal Power, Inc., OH Electricity Purchase Revenue Bonds, 2007A
Moody's has downgraded issue (3) to Baa2 from A2. The long-term rating on the bonds is based upon the credit quality of: (i) Goldman Sachs Group, Inc. (A3) as electric supplier guarantor; (ii) AMP Ohio (A1) as the participant; and (iii) Citigroup Inc. (Baa2/ P-2) as guaranteed investment agreement provider.
(4) Salt Verde Financial Corporation, AZ Senior Gas Revenue Bonds, 2007
Moody's has downgraded issue (4) to Baa2 from A3. This rating is based upon the credit quality of: (i) Citigroup, Inc. (Baa2) as gas supplier guarantor; (ii) Royal Bank of Canada (Aa3) as commodity swap provider; (iii) the Salt River Project Agricultural Improvement & Power District, AZ (Aa1) as the sole participant; and (iv) American General Life Insurance Company (A2) as guaranteed investment agreement provider.
(5) New Mexico Municipal Energy Acquisition Authority Gas Supply Variable Rate Revenue Bonds, Series 2009
(6) Lancaster Port Authority Gas Supply Variable Rate Revenue Bonds, Series 2008
(7) Main Street Natural Gas, Inc. Gas Project Variable Rate Revenue Bonds, Series 2010
(8) Central Plains Energy Project Gas Project Variable Rate Revenue Bonds (Project No. 2), Series 2009
(9) California Statewide Communities Development Authority Gas Supply Revenue Bonds, Series 2010
Moody's has downgraded the long-term ratings of issues (5) — (9) listed above to Aa3 from Aa1. The VMIG 1 short-term ratings are not affected. The long-term ratings on these issues are based upon the credit quality of Royal Bank of Canada (Aa3) as (i) the supplier under the gas purchase agreement and (ii) the interest rate swap provider.
(10) Texas Municipal Gas Acquisition & Supply Corporation II Gas Supply Revenue Bonds, Series 2007A & 2007B
(11) Indiana Bond Bank Gas Revenue Bonds, 2007
(12) Municipal Energy Acquisition Corp. Gas Revenue Bonds, Series 2006A & 2006B
Moody's has downgraded the long-term ratings of issues (10) — (12) listed above to A2 from Aa3. These ratings are based upon the credit quality of (i) JPMorgan Chase & Co. (A2) as gas supplier guarantor; (ii) BNP Paribas (A2) as commodity swap provider; (iii) JPMorgan Chase Bank, N.A. (Aa3) as interest rate swap provider; and (iv) Transamerica Life Insurance Company (A1/ P-1) as guaranteed investment agreement provider.
(13) Main Street Natural Gas, Inc. Gas Project Revenue Bonds, Series 2006A
Moody's has downgraded the rating of issue (13) to A2 from Aa3. This rating is based upon the credit quality of (i) JPMorgan Chase & Co. (A2) as gas supplier guarantor; (ii) Credit Agricole Corporate & Investment Bank (A2) as commodity swap provider; (iii) Assured Guaranty Municipal Corp. (Aa3 under review for downgrade) as surety bond provider; and (iv) Credit Agricole Corporate & Investment Bank (A2) as guaranteed investment agreement provider.
(14) Northern California Gas Authority No. 1 Gas Project Revenue Bonds, Series 2007A & 2007B
Moody's has downgraded the rating of issue (14) to Baa1 from A2. This rating is based upon the credit quality of (i) Morgan Stanley (Baa1) as gas supplier guarantor; (ii) Royal Bank of Canada (Aa3) as commodity swap provider; (iii) Morgan Stanley (Baa1) as interest rate swap provider; (iv) Sacramento Municipal Utility District (A1) as participant; and (v) Morgan Stanley (Baa1) as guaranteed investment agreement provider.
(15) Roseville Natural Gas Financing Authority, CA Gas Prepayment Revenue Bonds, Series 2007A
Moody's has downgraded the rating of issue (15) to Baa2 from Baa1. This rating is based upon the credit quality of (i) Merrill Lynch & Co. (Baa2) as gas supplier guarantor; (ii) JPMorgan Chase Bank, N.A. (Aa3) as commodity swap provider; (iii) Assured Guaranty Municipal Corp. (Aa3 under review for downgrade) as surety bond provider; and (iv) Wells Fargo Bank, N.A. (Aa3) as guaranteed investment agreement provider.
(16) Main Street Natural Gas, Inc. Gas Project Revenue Bonds, Series 2006B
Moody's has downgraded the rating of issue (16) to Baa2 from Baa1. This rating is based upon the credit quality of (i) Merrill Lynch & Co. (Baa2) as gas supplier guarantor; (ii) UBS AG (A2) as commodity swap provider; (iii) Assured Guaranty Municipal Corp. (Aa3 under review for downgrade) as surety bond provider; and (iv) Credit Agricole Corporate & Investment Bank (A2) as guaranteed investment agreement provider.
(17) Main Street Natural Gas, Inc. Gas Project Revenue Bonds, Series 2007A
Moody's has downgraded the rating of issue (17) to Baa2 from Baa1. This rating is based upon the credit quality of (i) Merrill Lynch & Co. (Baa2) as gas supplier guarantor; (ii) Credit Agricole Corporate & Investment Bank (A2) as commodity swap provider; (iii) the Municipal Gas Authority of Georgia (A1) as participant; and (iv) Transamerica Life Insurance Company (A1/ P-1) as guaranteed investment agreement provider.
(18) Public Authority for Colorado Energy Natural Gas Purchase Revenue Bonds, Series 2008
Moody's has downgraded the rating of issue (18) to Baa2 from Baa1. This rating is based upon the credit quality of (i) Merrill Lynch & Co. (Baa2) as gas supplier guarantor; (ii) Royal Bank of Canada (Aa3) as commodity swap provider; (iii) the City of Colorado Springs (Aa2) as participant; (iv) Transamerica Life Insurance Company (A1/ P-1) as guaranteed investment agreement provider; and (v) Credit Agricole Corporate & Investment Bank (A2) as guaranteed investment agreement provider.
(19) Natural Gas Acquisition Corporation of the City of Clarksville, TN Gas Revenue Bonds, Series 2006
Moody's has downgraded the rating of issue (19) to Baa2 from Baa1. This rating is based upon the credit quality of (i) Merrill Lynch & Co. (Baa2) as gas supplier guarantor; and (ii) Wells Fargo Bank, N.A. (Aa3/ P-1) as guaranteed investment agreement provider. Moody's rating also takes into consideration (i) the Aa3 underlying rating of the City of Clarksville, TN combined utility system and (ii) an internal assessment of the likelihood of the Humphreys County Utility District failing to make payment.
(20) Long Beach Bond Finance Authority Natural Gas Purchase Revenue Bonds, Series 2007A & 2007B
Moody's has downgraded the rating of issue (20) to Baa2 from Baa1. This rating is based upon the credit quality of (i) Merrill Lynch & Co. (Baa2) as gas supplier guarantor; (ii) Royal Bank of Canada (Aa3) as commodity swap provider; (iii) the City of Long Beach Gas Utility (A1) as participant; (iv) Merrill Lynch & Co.(Baa2) as interest rate swap provider; and (v) American General Life Insurance of Delaware (A2) as guaranteed investment agreement provider.
(21) Texas Municipal Gas Acquisition & Supply Corporation I, Gas Supply Revenue Bonds, Series 2006A & 2006B
(22) Texas Municipal Gas Acquisition & Supply Corporation I, Gas Supply Revenue Bonds, Series 2008D
Moody's has downgraded the ratings of issues (21) — (22) listed above to Baa2 from Baa1. These ratings are based upon the credit quality of Merrill Lynch & Co. (Baa2) as (i) gas supplier guarantor; and (ii) interest rate swap provider for Series 2006B and Series 2008D.
(23) Central Plains Energy Project Gas Project Revenue Bonds (Project No. 3), Series 2012
Moody's has downgraded the rating of issue (23) to A3 from A1. This rating is based upon the credit quality of: (i) Goldman Sachs Group, Inc. (A3) as gas supplier guarantor; (ii) Municipal Utilities District of Omaha (Aa2) as participant; and (iii) Natixis (A2) as guaranteed investment agreement provider.
(24) Black Belt Energy Gas District Gas Project Revenue Bonds, Series 2012A
Moody's has downgraded the rating of issue (24) to A3 from A1. This rating is based upon the credit quality of: (i) Goldman Sachs Group, Inc. (A3) as gas supplier guarantor; (ii) The Municipal Gas Authority of Georgia (A1) as participant; and (iii) Clarke-Mobile Counties Gas District (A1) as participant.
If you are an investor in these bonds, these downgrades may impact the yield and profitability of your holdings. Moreover, if these bonds were recommended to you as safe or if the credit risk of the gas supplier guarantor was not disclosed, you may have a claim to recover any losses against the brokerage firm or financial professional that recommended the bonds.
To discuss your litigation options, please call the securities attorneys of The White Law Group at 312/238-9650 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.
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