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New York, August 18, 2022 -- Moody's Investors Service has assigned a Baa1 rating to Black Belt Energy Gas District (the Issuer) Gas Project Revenue Bonds, 2022 Series F (the Bonds).
The Baa1 rating takes into account the following factors:
(i) the credit quality of Nomura Holdings, Inc. (Nomura) (Baa1) as guarantor of Nomura Corporate Funding Americas, LLC (NCFA) the investment agreement provider;
(ii) the credit quality of Florida Gas Utility (A2) as a municipal participant;
(iii) the credit quality of Clarke-Mobile Counties Gas District (A1) as a municipal participant;
(iv) the credit quality of the providers of the guaranteed investment contracts (GICs) (if any) provided for the debt service account, debt service reserve account and the commodity swaps reserve account (such providers, each of which will be rated by Moody's at a level which supports the rating on the Bonds, will be identified at closing); and
(v) 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
• Moody's upgrades the rating of Nomura Holdings, Inc.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
• Moody's downgrades the rating of Nomura Holdings, Inc.;
• Significant downgrade of the issuer rating of Florida Gas Utility
• Significant downgrade of the long-term rating of Clarke-Mobile Counties Gas District
• Significant downgrade of the long-term rating(s) of the investment agreement provider(s) (if any).
Bond proceeds will be used by the Issuer to prepay Aron Energy Prepay 13 LLC (the Gas Supplier or LLC) for the delivery of a specified quantity of natural gas to be delivered on a daily basis over a 30-year period pursuant to the Prepaid Gas Sales Agreement (GPA). The Issuer will sell the gas acquired under the GPA to Florida Gas Utility, Clarke-Mobile Counties Gas District and Cullman-Jefferson Counties Gas District (the Specified Project Participant) pursuant to their Gas Supply Agreements. The prepayment amount will be deposited by the LLC in an investment agreement (the Funding Agreement) with NCFA. NCFA will make monthly payments under the Funding Agreement and the Funding Agreement matures on the last business day of the initial rate period.
Bond proceeds will also be used to fund (i) the commodity swap reserve account and (ii) the debt service reserve account (DSRA).
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 July 31, 2029 and the Bonds are subject to mandatory tender on the business day, August 1, 2029, following such rate period. Following the initial long-term rate period, the Bonds may be converted to the fixed, daily, weekly, commercial paper or index rate mode.
During the initial long-term rate period, a failed remarketing occurs if (i) on the last day of the second calendar month preceding the mandatory tender date, the Issuer has not entered into a bond purchase agreement, firm remarketing agreement or similar agreement for such Bonds, or (ii) such agreement is entered into but the purchase price of the Bonds is not delivered into the trust estate by the fifth day preceding such mandatory tender date. A failed remarketing results in a mandatory redemption of the Bonds which would occur on the mandatory tender date. The Funding Agreement matures and funds a final payment on the last business day of the then initial long-term interest rate period. Such final payment, combined with amounts on deposit in (i) the commodity swap reserve account, (ii) the DSRA and (iii) the debt service account (including investment earnings on the debt service account), have been calculated to be sufficient to cover redemption of the Bonds on the mandatory tender date at their amortized value plus accrued interest.
Moody's rating terminates on the mandatory tender or redemption date immediately following the end of the initial long-term rate period as the Funding Agreement matures on such date.
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 such agreement. The Gas Supplier will enter into the Gas Purchase, Sale and Service Agreement (GSSA) with J. Aron under which J. Aron agrees to deliver the natural gas to the Gas Supplier as well as make payments upon the failure to deliver such gas. J. Aron's payment obligations under the GSSA are guaranteed by The Goldman Sachs Group, Inc. (Goldman). The Issuer will in turn sell daily quantities, billed on a monthly basis, of delivered gas to the municipal participants pursuant to their Gas Supply Contracts. The Contract Price which the municipal participants pay will be based upon an 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 swaps described below, will be sufficient to make the fixed payments owed to Bondholders.
Cullman-Jefferson Counties Gas District (the Specified Project Participant) in addition to Florida Gas Utility and Clarke-Mobile Counties Gas District is a municipal participant. In the event that a municipal participant fails to make a payment for delivered gas, the trustee will draw, if necessary, on the DSRA if there is a deficiency in the debt service account. In addition, following a nonpayment by the Specified Project Participant, if the trustee determines that the balance in the DSRA is less than the minimum requirement and sufficient funds will not be available to pay principal or interest on the Bonds immediately prior to the final maturity date or an early termination payment date, the trustee shall deliver a put option notice under the Receivables Purchase Exhibit (RPE) with a copy to the custodian under the Master Custodial Agreement. Upon receipt of such notice, the LLC shall purchase such receivables. The payment for such receivables would be made from funds the LLC deposited into the Master Custodial Agreement representing a capital contribution and subordinated loan by J. Aron to the LLC which shall be held by the Master Custodial Agreement custodian in the Put Receivables Account. Therefore, risk of non-payment by the Specified Project Participant is covered by the cash funded LLC capital contribution and subordinated loan deposited in the Put Receivables Account under the Master Custodial Agreement.
If a municipal participant defaults in payment, the trustee will notify (i) the Issuer with instructions 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 (as well as J. Aron under the GSSA) to make a minimum payment at least equal to the Contract Price.
The DSRA is sized for the value of two months of the highest quantity of gas during the initial reset period due to be delivered to the municipal participants at the fixed price due from the Commodity Swap Counterparties (less the discount). Since funds held in the DSRA and the commodity swaps reserve account will be required to make payments due to bondholders at maturity or prior redemption to the extent that they have not been drawn down, Moody's rating takes into consideration the ratings of the providers of the investment agreements (if any) in which they are invested.
Since the revenue received from gas sales to the municipal participants are variable and the payment owed to Bondholders is fixed, the Issuer will enter into commodity swaps (the Commodity Swaps) with the Commodity Swap Counterparties, which will result in the Issuer receiving fixed payments while paying the Contract Price to the Commodity Swap Counterparties, on a net basis.
In addition, the LLC and the Commodity Swap Counterparties will enter into commodity swaps (the Back-End Commodity Swaps) relating to the prepaid gas supply on terms matching (on an off-setting basis from the perspective of the Commodity Swap Providers) the terms of the Commodity Swaps. The monthly payments by under the Funding Agreement are equal to this fixed payment owed by the LLC on the Back-End Commodity Swaps plus fixed interest until the end of the initial long-term rate period.
Payments to be made by LLC under the Back-End Commodity Swaps are deposited monthly with a custodian under a back-end swap custodial agreement. If the Commodity Swap Counterparties fail to make a required payment under their Commodity Swap, the custodian is required under the terms of the back-end swaps custodial agreement to deliver to the trustee the funds provided by the LLC on the Back-End Commodity Swaps, which funds will be applied by the trustee in the same manner as payments made by the Commodity Swap Counterparties. In addition, NCFA's monthly payments under the Funding Agreement are deposited into the Master Custodial Agreement as revenues of the LLC and would be delivered to the back-end swaps custodial agreement as payment of the LLC obligations. Therefore, the rating of the Commodity Swap Counterparties is not a factor in the long-term rating assigned to the Bonds.
In any failure by the Gas Supplier to deliver the gas, including failure to deliver the 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 or what the Issuer paid for replacement gas. J. Aron is also obligated to make these payments under the GSSA which payments are guaranteed by Goldman. However, NCFA's monthly payments would be delivered by the LLC to the trustee if gas was not being delivered (in lieu of the payment to the back-end swaps custodial agreement). Therefore, the rating of Goldman is not a factor in the long-term rating assigned to the Bonds.
Various events under the GPA lead to a Gas Delivery Period Termination Event and/or a Termination Payment Event.
There is no final payment date following certain Gas Delivery Period Termination Events unless NCFA makes a pre-payment election under the Funding Agreement. Following a Gas Delivery Termination Event, gas deliveries will cease and the GSSA, Commodity Swaps and gas supply agreement will terminate. However, the GPA remains in effect and the monthly payments under the NCFA Funding Agreement will continue which are sufficient to pay debt service on the Bonds.
The occurrence of a Termination Payment Event is either (i) reflected in Moody's long-term rating of the Bonds (the LLC fails to pay when due any amounts owed to Buyer pursuant to the GPA because of a failure by NCFA to pay under the Funding Agreement for 30 days) or (ii) coincident with the maturity of the NCFA Funding Agreement and the final payment under such Funding Agreement.
The principal methodology used in this rating was US Gas Prepayment Bonds Methodology published in July 2019 and available at https://ratings.moodys.com/api/rmc-documents/60900 . Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
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 on https://ratings.moodys.com/rating-definitions .
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 issuer/deal page for the respective issuer on https://ratings.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://ratings.moodys.com/documents/PBC_1288235 .
Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Michael J. Loughlin Vice President - Senior Analyst 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
Joann Hempel VP - Senior Credit Officer 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
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