New York, April 18, 2019 -- Moody's Investors Service has assigned a Aa1 rating to Main Street Natural
Gas, Inc. (the Issuer), Gas Supply Revenue Bonds,
Series 2019B, 2019C, 2019D and 2019E. (the Bonds).
The rating on the Bonds takes into account the following factors:
(A) the credit quality of The Toronto-Dominion Bank (TD) (Aa1)
for payments due under (i) the Prepaid Natural Gas Purchase and Sale Agreement
(GPA), (ii) the settlement agreement, (iii) the back-end
commodity swap, (iv) the funding agreement and (v) the interest
rate swaps for Series 2019C, 2019D and 2019E; and (B) the structure
and mechanics of the transaction which provide for the payment of debt
service and purchase price consistent with the rating assigned to the
Bonds.
FACTORS THAT COULD LEAD TO AN UPGRADE
• Upgrade of the long-term rating of TD's senior unsecured
obligations.
FACTORS THAT COULD LEAD TO A DOWNGRADE
• Downgrade of the long-term rating of TD's senior unsecured
obligations.
RATINGS RATIONALE
Bond proceeds will be used to prepay the Gas Supplier (TD) 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 Series 2019B Bonds will, at issuance, bear interest at
a fixed rate for an initial long-term rate period and pay interest
semi-annually. At issuance, the Series 2019C Bonds
will bear interest at a LIBOR index rate mode (or any successor or substitute
for such reported rate); the Series 2019D Bonds will bear interest
at a SIFMA index rate mode; and the Series 2019E Bonds will bear
interest at a SOFR index rate mode. The Series 2019C, 2019D
and 2019E bonds will pay interest monthly. The initial long-term
rate period and the initial index rate periods for all the Series end
on December 1, 2024. On the business day following such date
(December 2, 2024) the Bonds shall be subject to mandatory tender.
The mandatory tenders will be funded with remarketing proceeds.
If remarketing proceeds are insufficient, the tenders will be funded
from a draw on the settlement agreement provided by TD. The settlement
agreement is available to pay principal only on the Bank Purchase Date.
After the initial rate periods, the Bonds may be converted in whole,
by subseries, to the daily, weekly, LIBOR index,
SIFMA index, SOFR index, long-term or commercial paper
rate modes. TD's commitment under the settlement agreement
cannot terminate without a mandatory tender funded with a draw on the
settlement agreement in the event remarketing proceeds are insufficient.
TD may not send a notice of termination to the trustee. The settlement
agreement expires upon the earliest to occur of: (i) the Stated
Expiration Date (the business day following the Bank Purchase Date);
and (ii) the date no Bonds are outstanding.
The Trustee will draw on the settlement agreement, in accordance
with its terms, in an amount sufficient to make payments of purchase
price on the Bank Purchase Date, net of remarketing proceeds on
deposit. The Trustee will draw by 10:30 a.m.,
New York time, in order to receive payment by 12:30 p.m.
on the same day.
Moody's rating terminates upon termination of the settlement agreement
currently scheduled for December 2, 2024 (the business day following
the initial rate periods).
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), plus the premium (if any),
plus any payments resulting from a change in delivery point. 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 on any interest payment date or principal
payment date, the indenture instructs the trustee to demand an advance
under the Funding Agreement provided by TD. Under the Funding Agreement
TD 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
swap) which amount shall be sufficient to pay debt service.
Since the revenues received from gas sales to the Gas Purchaser are variable
and the payments due to (i) the 2019B bond obligations and (ii) the 2019C,
2019D and 2019E interest rate swap obligations are fixed, the Issuer
entered into a front-end commodity swap with Royal Bank of Canada
(RBC or the Commodity Swap Counterparty), pursuant to which the
Issuer receives fixed payments in exchange for the floating payments calculated
using the applicable Index Price.
Since the interest rate payments due on the 2019C, 2019D and 2019E
bonds are variable, the Issuer shall enter into interest rate swaps
with TD. Under the terms of the interest rate swaps TD receives
a fixed payment and pays the index rate due on the 2019C, 2019D
and 2019E bonds. The rating of TD as interest rate swap counterparty
is factored into the rating on the 2019C, 2019D and 2019E bonds.
Payments under the commodity swap will be made on a monthly basis.
The netted payment, combined with payments for gas delivered and
the interest rate swap payments for the 2019C, 2019D and 2019E bonds,
will be sufficient to pay the debt service due to bondholders.
Payments to or from the Commodity Swap Counterparty 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 Counterparty. 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 an 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.
The commodity swap and interest rate swaps include standard ISDA events
of default and termination events. Termination of the commodity
swap or interest rate swaps for (i) any default associated with the swap
counterparty unless the swap is replaced and (ii) certain defaults of
the Issuer will be an automatic triggering event under the GPA and a mandatory
redemption event under the Indenture. If a swap terminates and
is not replaced, the GPA will terminate, and 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 final 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.
Nonpayment by the Commodity Swap Counterparty prior to the redemption
of the Bonds is covered by a custodial arrangement relating to the back-end
commodity swap between TD and RBC. Payments by TD to RBC under
the back-end commodity swap are at least equal to payments owed
to the Issuer by RBC on the commodity swap. In order to address
the risk that a nonpayment by RBC under the commodity swap 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 TD under the back-end commodity swap
are deposited monthly with a custodian under a custodial agreement.
If RBC fails to make a required payment under the commodity swap,
the custodian is required, under the terms of the custodial agreement,
to deliver to the trustee the funds provided by TD 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. Therefore,
the rating of the Commodity Swap Counterparty is not a factor in the rating
assigned to the Bonds.
The Issuer and the Gas Supplier can replace the commodity swap or interest
rate swap provider at any time with written confirmation from Moody's
that the rating on the Bonds will not be lowered or withdrawn.
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 Index Price. This amount will be sufficient to pay
debt service and amounts owed under the commodity swap and/or the interest
rate swap.
An Automatic Triggering Event or a termination of the GPA at the option
of either the Issuer or Gas Supplier will cause the GPA to terminate as
of the Early Termination Date, which is the last day of the month
following the month in which such event occurred. On the Early
Termination Date, the Gas Supplier will make the Liquidation Payment,
which will be sufficient to redeem the Bonds at the amortized value of
the Bonds. Under the Indenture, the Bonds will be redeemed
on the first day of the month following the Early Termination Date.
Automatic Triggering Events include, but are not limited to:
(i) an Event of Insolvency of the Gas Supplier; (ii) failure of the
Gas Supplier to make a required payment under the GPA; (iii) an Event
of Default or Termination Event under the commodity swap or back-end
commodity swap and the failure of the Issuer to replace either the Commodity
Swap or back-end commodity swap; and (iv) an Event of Default
or Termination Event under the interest rate swap and the failure of the
Issuer to replace the interest rate swap. In the event of an early
redemption of the Bonds because of a termination of the GPA, the
Trustee will deposit the Liquidation Payment from the Gas Supplier in
the Termination Fund in an amount sufficient to redeem the Bonds.
The principal methodology used in these ratings 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
