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By clicking “I AGREE”, you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s information that becomes accessible to you (the “Information”). References herein to “Moody’s” include Moody’s Corporation. and each of its subsidiaries and affiliates..

 

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Rating Action:

Moody's assigns Aa2 to Black Belt Energy Gas District Gas Supply Revenue Bonds, Series 2021A

22 Mar 2021

New York, March 22, 2021 -- Moody's Investors Service, (Moody's) has assigned an Aa2 rating to Black Belt Energy Gas District (the Issuer) Gas Supply Revenue Bonds, Series 2021A (the Bonds).

RATINGS RATIONALE

The Aa2 rating takes into account the following factors:

(i) the credit quality of Royal Bank of Canada (RBC or Gas Supplier) (Aa2) as gas supplier, back-end commodity swap provider, liquidity facility provider, and funding agreement provider; and

(ii) 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 OF THE RATING

» Upgrade of the long-term rating of RBC's senior unsecured obligations.

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

» Downgrade of the long-term rating of RBC's senior unsecured obligations.

The Issuer's 2016A bond issuance was used to prepay RBC for the delivery of a specified quantity of natural gas to be delivered on a daily basis over a 30 year period. The 2021A Bond proceeds will be used to refund the 2016A bonds. The Issuer will continue to sell gas acquired under the Prepaid Natural Gas Purchase and Sale Agreement (GPA) to the Municipal Participants pursuant to gas supply contracts. The 2021A Bond proceeds will also be used to acquire additional gas volumes.

The Bonds are being issued in an initial long-term rate period at a fixed rate of interest payable semiannually. The initial rate period is scheduled to end on November 30, 2031 and the Bonds are subject to mandatory tender on the business day following such rate period. The Bonds may be converted to the fixed, daily, weekly, CP, LIBOR or SIFMA index rate modes at any time after the business day following the initial long-term rate period.

Moody's rating terminates on the mandatory tender date at the end of the initial rate period as (i) RBC has the option to renew its liquidity facility and (ii) the funding agreement sizing is calculated for the initial rate period.

Pursuant to the GPA between the Gas Supplier and the Issuer, the Gas Supplier agrees to deliver to the Issuer natural gas in quantities specified in the agreement. The Issuer will in turn sell daily quantities, billed on a monthly basis, of delivered natural gas to the Municipal Participants pursuant to gas supply contracts. The Contract Price which the Municipal Participants pay will be based upon a first-of-the-month index price per MMBtu (the Index Price), less a specified discount. The payments to be received from the Municipal Participants, net of payments made or received by the Issuer on the commodity swap described below, will be sufficient to make the fixed payments owed to Bondholders.

Should a Municipal Participant fail to make a payment for delivered gas and if the Trustee has insufficient funds to make scheduled payment on the Bonds on or before the 2nd business day prior to any payment date, the Trustee shall request a mandatory advance from RBC under the Funding Agreement.

If a Municipal Participant defaults in its payment, the trustee will notify; (i) the Issuer and instruct it to immediately suspend delivery of gas and (ii) the Gas Supplier with a notice 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 Index Price less the discount.

Since the revenue received from gas sales to the Municipal Participants is variable and the payment owed to Bondholders is fixed, the Issuer has entered into a commodity swap (the Commodity Swap) with BP Energy Company (the Commodity Swap Counterparty), which results in the Issuer receiving fixed payments while paying the Index Price to the Commodity Swap Counterparty, on a net basis.

The Commodity Swap includes standard ISDA events of default and termination events. Termination of the Commodity Swap for (i) any default associated with the Commodity 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. The Issuer can replace the Commodity Swap Counterparty at any time with written confirmation from Moody's that the rating on the Bonds will not be reduced or withdrawn.

As part of the transaction, RBC and the Commodity Swap Counterparty entered into a commodity swap (the Back-End Commodity Swap) relating to the prepaid gas supply on terms matching (on an off-setting basis from the perspective of the Commodity Swap Provider) the terms of the Commodity Swap.

In order to address the risk that a nonpayment by the Commodity Swap Counterparty under the Commodity Swap could lead to an insufficiency in the payment due to the Bondholders, all payments to be made by RBC under the Back-End Commodity Swap are deposited monthly with a custodian under a custodial agreement. If the Commodity Swap Counterparty 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 RBC on the Back-End Commodity Swap, which funds will be applied by the Trustee in the same manner as payments made by the Commodity Swap Counterparty. Should any termination of the Back-End Commodity Swap occur, RBC will continue to make payments to the custodian until the earlier of (i) termination of the GPA and (ii) replacement of both the Commodity Swap and the Back-End Commodity Swap. Therefore, the rating of the Commodity Swap Counterparty is not a factor in the long-term rating assigned to the Bonds.

Upon any failure by the Gas Supplier to deliver gas, including failure to deliver gas associated with an event of force majeure, the Gas Supplier is required to make payments to the Issuer equal to the higher of the Index Price, the Contract Price or what the Issuer paid for replacement gas.

In the event of an early termination of the GPA at the option of either the Issuer or Gas Supplier or due to an automatic early termination event, the GPA will terminate as of the early termination date. Upon the early termination date, gas deliveries will cease and obligations of both the Issuer and the Gas Supplier will terminate. The Gas Supplier will make the termination payment in an amount set forth in the monthly schedule listed in the GPA. The termination payment will be made on the last business day of the month following the month in which such early termination event occurred. Such final payment amount, combined with amounts on deposit in (i) the revenue fund, (ii) the debt service reserve fund, (iii) the commodity swap payment fund, and (iv) the debt service fund have been calculated to be sufficient to cover redemption of the Bonds at their amortized value plus accrued interest. Under the Indenture, the Bonds will be redeemed on the first day of the first month for which notice of redemption can be provided by the trustee following the termination payment date.

The principal methodology used in this rating was US Gas Prepayment Bonds Methodology published in July 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1142804. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

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

Florence Zeman
Associate Managing Director
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

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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