New York, December 12, 2018 -- Moody's Investors Service has assigned an A3 rating to Main Street Natural
Gas, Inc. (the Issuer), Gas Supply Revenue Bonds,
Series 2018F (the Bonds).
The rating on the Bonds takes into account the following factors:
(A) the credit quality of Macquarie Group Limited (MGL) (A3) for payments
due under (i) the Prepaid Natural Gas Purchase and Sale Agreement (GPA),
(ii) the funding agreement, (iii) the back-end commodity
swap, and (iv) the custodial agreement; (B) the credit quality
of the provider of the guaranteed investment contract (GIC), if
any, provided for the debt service account (such provider,
which will be rated by Moody's at least as high as the rating on the Bonds,
will be identified at closing); and (C) the structure and mechanics
of the transaction which provide for the payment of debt service consistent
with the rating assigned to the Bonds.
FACTORS THAT COULD LEAD TO AN UPGRADE
• Upgrade of the long-term rating of MGL's senior unsecured
obligations.
• Upgrade of the long-term rating of the investment agreement
provider.
FACTORS THAT COULD LEAD TO A DOWNGRADE
• Downgrade of the long-term rating of MGL's senior
unsecured obligations.
• Downgrade of the long-term rating of the investment agreement
provider.
RATINGS RATIONALE
Bond proceeds will be used to prepay the Gas Supplier (Macquarie US Gas
Supply LLC (Macquarie US)) for the delivery of a specified quantity of
natural gas on a monthly basis over a 30-year period. The
Issuer will sell gas acquired under the GPA to the Municipal Gas Authority
of Georgia (the Gas Purchaser) under a Natural Gas Supply Agreement.
The Bonds will bear interest at a fixed rate and pay interest semi-annually.
Pursuant to the GPA between the Gas Supplier and the Issuer, the
Gas Supplier agrees to deliver to the Issuer natural gas on a monthly
basis in daily quantities specified in such agreement. The Issuer
will in turn sell daily quantities, billed on a monthly basis,
of delivered natural gas to the Gas Purchaser pursuant to the Natural
Gas Supply Agreement. The monthly price payable by the Gas Purchaser
under the Natural Gas Supply Agreement will be equal to the Index Price
for such month less a specified discount (the Contract Price).
Payments for gas delivered will be due on the 20th of each month following
the month of delivery.
In the event there is a deficiency (i) on the last business of each month
or (ii) on the second business day prior to any interest payment date
or principal payment date, the indenture instructs the trustee to
demand a mandatory advance under the funding agreement provided by Macquarie
US. Under the funding agreement Macquarie US is obligated to make
up such deficiency (up to an amount equal to the highest two months of
gas volumes at the fixed price under the commodity swaps per advance)
which amount shall be sufficient to pay debt service on any payment date.
In addition, certain payment obligations of Macquarie US under the
GPA (payment for gas not delivered, gas not taken, force majeure
or remarketing of gas) are paid with a mandatory advance pursuant to the
funding agreement. The funding agreement payments are guaranteed
by MGL.
Since the revenues received from gas sales to the Gas Purchaser are variable
and the payments due on the Bonds are fixed, the Issuer entered
into front-end commodity swaps with Royal Bank of Canada and JPMorgan
Chase Bank, N.A. (collectively the Commodity Swap
Counterparties), pursuant to which the Issuer receives fixed payments
in exchange for the floating payments calculated using the applicable
Index Price. Payments under the commodity swaps will be made on
a monthly basis. The netted payments, combined with payments
for gas delivered, will be sufficient to pay the debt service due
to bondholders. Payments to or from the Commodity Swap Counterparties
are due on the 25th of that month.
A failure on the part of the Gas Purchaser to pay for the delivered gas
may result in a shortfall in the amounts required to be paid to the Commodity
Swap Counterparties. Under the Natural Gas Supply Agreement,
the Gas Purchaser is obligated to pay the Contract Price when gas is delivered.
If the Gas Purchaser defaults in its payment, the Trustee shall
(i) request a mandatory advance under the Funding Agreement as described
previously and (ii) instruct the Gas Supplier to immediately suspend delivery
of gas and to begin remarketing gas on a monthly basis. A monthly
remarketing of gas under this scenario obligates the Gas Supplier to make
a minimum payment at least equal to the Net Monthly Price going forward.
Nonpayment by the Commodity Swap Counterparties prior to the redemption
of the Bonds is covered by a custodial arrangement relating to the back-end
commodity swaps between Macquarie US and the Commodity Swap Counterparties.
Payments by Macquarie US to the Commodity Swap Counterparties under the
back-end commodity swap are at least equal to payments owed to
the Issuer by the Commodity Swap Counterparties on the commodity swaps.
In order to address the risk that a nonpayment by the Commodity Swap Counterparties
under the commodity swaps could lead to an insufficiency in the payment
due to the bondholders or result in an early termination event under the
GPA and a redemption of the Bonds, all payments to be made by Maquarie
US under the back-end commodity swaps are deposited monthly with
a custodian under a custodial agreement. If the Commodity Swap
Counterparties fail to make a required payment under the commodity swaps,
the custodian is required, under the terms of the custodial agreement,
to deliver to the trustee the funds provided by Macquarie US on the back-end
commodity swap. Such funds will be applied by the trustee in the
same manner as payments made by the Commodity Swap Counterparty and such
funds will be sufficient to pay debt service on the Bonds. In addition,
should the back-end commodity swap terminate, Macquarie US
continues to make required payments pursuant to the custodial agreement
until the swap is replaced. The back-end commodity swap
and the obligations under the custodial agreement are guaranteed by MGL.
Therefore, the rating of the Commodity Swap Counterparties are not
a factor in the rating assigned to the Bonds.
The commodity swaps include standard ISDA events of default and termination
events. The GPA will automatically terminate upon (i) termination
of a commodity swap or back-end commodity swap as a result of any
default associated with the swap counterparty unless the swap is replaced,
(ii) termination of a commodity swap as a result of certain defaults of
the Issuer, (iii) termination of the back-end swap due as
a result of a default by Macquarie US and (iv) the gas supplier fails
to make certain payments under the GPA (excluding the liquidation payment,
as described above) and such payment is not made under the funding agreement.
Upon GPA termination, an Early Termination Date will be declared
on the last day of the month following the date of the termination of
the GPA. On the Early Termination Date, the Gas Supplier
will make a liquidation payment sufficient to redeem the Bonds at the
amortized value plus accrued interest to the redemption date which will
be the first day of the month following the Early Termination Date.
The liquidation payment under the GPA is guaranteed by MGL.
If the Gas Supplier fails to deliver gas for any reason including a force
majeure, the Gas Supplier is obligated to make payments to the Issuer
equal to the highest of the Index Price, the Contract Price,
or what the Issuer paid for gas needed to meet its gas delivery obligation
to the Gas Purchaser. Any of these amounts (which are guaranteed
by MGL pursuant to the funding agreement) will be sufficient to pay debt
service and amounts owed under the commodity swaps.
The principal methodology used in this rating was Gas Prepayment Bonds
published in March 2017. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Joann Hempel
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Chandra Ghosal
VP - Senior Analyst/Manager
Public Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
