-- Texas Municipal Gas Acquisition and Supply Corp. III
issued $1.4 billion series 2012 bonds to fund a new 20-year
supply of discounted gas for its MuniGas affiliate.
-- Bond proceeds will finance the prepayment of a 20-year
supply of natural gas from Macquarie US Gas Supply LLC
(unrated), whose obligations Macquarie Group Ltd.
-- We are assigning the gas prepay transaction a 'BBB'
long-term rating, linked to Macquarie Group as the guarantor
under the prepaid gas agreement and funding agreement.
-- The stable outlook reflects that on Macquarie Group.
On Dec. 3, 2012, Standard & Poor's Ratings Services assigned
its 'BBB' rating to Texas Municipal Gas Acquisition and Supply
Corp. III's (TexGas III) $1.4 billion series 2012 revenue bonds.
The rating is tied to the long-term rating on Macquarie Group
Ltd., which guarantees the obligations of TexGas III's gas
supplier, Macquarie US Gas Supply LLC (MGS), under the gas
supply agreement and the funding agreement. The outlook is
Standard & Poor's Ratings Services' rating on TexGas III's
$1.4 billion gas supply revenue bonds series 2012 due 2032 is
'BBB'. The outlook is stable. The key counterparties required to
perform in the transaction but that are not necessarily a rating
-- Macquarie Group Ltd. (BBB/Stable/A-2), which guarantees
the obligation of TexGas III 's gas supplier Macquarie US Gas
Supply LLC (MGS; not rated);
-- JPMorgan Chase Bank N.A. (A+/Negative/A-1) and CitiBank
N. A. (A/Negative/A-1), the fixed-price commodity
-- Municipal Gas Acquisition and Supply Corp. (MuniGas; not
rated), an affiliate of TexGas; and
-- Natixis Funding Corp., guaranteed by Natixis
(A/Negative), the investment contract provider for the debt
TexGas III is a Texas public facility corporation, created
in accordance with the provisions of the Public Facility
Corporation Act, Chapter 303, Texas Local Government Code. It
was established in 2012 to issue bonds and acquire discounted
natural gas supplies for its MuniGas affiliate to supply its
municipal members. Proceeds of the $1.4 billion series 2012
bonds will fund the prepayment of an expected 405 billion cubic
feet of gas scheduled for delivery to TexGas III from MGS over
20 years. Macquarie Group Ltd., which guarantees the obligations
of TexGas III's gas supplier, MGS, is also obligated to make
payments on gas not delivered and to make a termination payment
upon an early termination of the prepaid contract. Under a
resale contract, the volumes will be sold to MuniGas at the
first-of-the-month index price, minus a predetermined discount.
The floating-index-based revenue that TexGas III receives from
MuniGas will be exchanged through commodity swaps with JPMorgan
Chase Bank and CitiBank for fixed amounts sufficient to pay
interest and principal on the debt. The discount on the
delivered gas is locked in for the transaction's duration by the
swaps' economic terms and is made possible by the low cost of
funding achieved by TexGas III through its tax-exempt debt
The rating on the bonds reflects our view of the following
-- The 'BBB' rated parent Macquarie Group Ltd. guarantees
MGS' obligations under the prepaid natural gas agreement and the
-- If MGS fails to deliver gas for any reason, excluding
force majeure, it must either reimburse TexGas III for the cost
of replacement gas or pay the index price for the undelivered
-- The credit risk of MuniGas is not linked to the rating on
the transaction because provisions that require the remarketing
of gas volumes to other qualified municipalities and because
advances available through the funding agreement insulate
bondholders if TexGas III experiences deficiencies. These
provisions provide adequate funds for debt service payments to
unwind the transaction.
-- The credit risk of the commodity swap counterparties is
not linked to the rating on the transaction. An escrow account
has been established that will release payment to the swap
providers only after they have paid TexGas III, but does not
require MGS to redirect the swap payment to TexGas III. If a
swap provider fails to perform, there is sufficient funding to
unwind the transaction.
-- Payment from MGS under the prepaid contract, along with
other required funds, would be sufficient to redeem bonds in the
event of an early termination of the prepaid contract.
-- Interest from the investment provider Natixis for the
debt service accounts is not needed to pay debt service, but the
funds from the account must be available to unwind the
transaction if necessary.
Payment on the bonds depends on the ability of linked
counterparties to perform under the transaction documents.
Bondholders are exposed to the payment and performance risk of
Macquarie under the gas supply and funding agreement and Natixis
under the investment agreement for the debt service account.
We could lower the rating on the bonds if the rating on any
of the linked counterparties falls to less than 'BBB'. The
termination of the commodity swap without a replacement will
cause the transaction to unwind and will obligate MGS to make a
termination payment that is calculated to be sufficient,
together with funds in the debt service account and commitments
by MGS under the funding agreement, to redeem the bonds.
Bondholders benefit from the funding agreement with MGS. The
funding agreement provides a general commitment of funds equal
to one month of senior expenses and debt service on a
forward-looking basis, as well as a senior commitment of funds
equal to two months of senior expenses and debt service on a
forward-looking basis. The general commitment is available to
pay senior expenses, debt service, and commodity swaps, and the
senior commitment is available to pay senior expenses and debt
service. The general commitment can be drawn without triggering
a termination event, but the senior commitment would trigger a
termination event, subject to cure. Such advances through the
funding agreement become mezzanine loans that are subordinate to
bondholders. If the transaction terminates, the bondholders
would be repaid first. The funding commitments are contracted to
range in total from $20 million to $64million over the life of
the transaction, and Macquarie Group guarantees the obligations
under the funding agreement.
The stable outlook reflects that on Macquarie Group, which
guarantees the obligations of TexGas III's gas supplier, MGS,
under the prepaid natural gas agreement and the funding
agreement. We could lower the rating and revise the outlook to
the extent that we revise the long-term rating or outlook on
Macquarie Group or if we lower the rating on Natixis and Natixis
becomes the primary ratings constraint on the transaction.
Our ratings on Macquarie Group reflect the anchor
stand-alone credit profile (SACP) for a bank operating mainly in
Australia; plus the group's "adequate" business position,
"adequate" capital and earnings, "moderate" risk position,
"adequate" liquidity, "average" funding, and its status as a
nonoperating holding company.
Related Criteria And Research
-- Assessing Credit Quality By The Weakest Link, Feb. 13,
-- Counterparty Risk Framework Methodology And Assumptions,
May 31, 2012
-- Methodology And Assumptions For Market Value Securities,
Aug. 31, 2010
Texas Municipal Gas Acquisition and Supply Corp. III
Series 2012 rev bnds BBB/Stable