Fitch Ratings has affirmed the rating on the following bonds issued by Main Street Natural Gas, Inc (MSNG): -- $251.4 million gas project revenue bonds, series 2007A at 'A'. The Rating Outlook on the bonds is Stable. SECURITY The bonds are special obligations of the issuer, payable solely from revenues and other funds pledged under the indenture. Revenues are derived from the fulfillment of obligations from each of the transaction's varied counterparties. Bondholders also rely on funds pledged under the indenture, which are typically invested by a third party. CREDIT SUMMARY Given the structured nature of prepaid natural gas transactions and the different components of pledged revenue, ratings generally reflect Fitch's assessment of the relevant counterparties and structural enhancements. The principal counterparties in the Main Street Natural Gas Series (MSNG) 2007A transaction include Bank of America Corp. (BAC; rated 'A'/Outlook Stable), Royal Bank of Canada (RBC; rated 'AA'/Outlook Stable) and TransAmerica Life Insurance Company ( AEGON ; rated 'AA-'/Outlook Negative). Natural gas is purchased by the Municipal Gas Authority of Georgia (MGAG; rated 'A+'/Outlook Stable), whose obligations are supported by a surety bond from Syncora Guarantee Inc. (not rated). KEY RATING DRIVERS SOLID GUARANTEED GAS SUPPLIER: Natural gas is supplied to MSNG by Merrill Lynch Commodities, Inc. (MLCI), whose obligations are guaranteed by BAC. In the event MLCI fails to deliver gas for any reason (including force majeure), it is required to pay specified amounts to MSNG. SINGLE GAS PURCHASER: The sole gas purchaser is MGAG, which exhibits a strong credit profile. Fitch does not believe that the Syncora surety bond, that provides payment in the event of MGAG's failure to pay for delivered gas, provides additional rating enhancement to the structure. STRONG COMMODITY SWAP PROVIDER: RBC is the commodity swap provider and exhibits a strong credit profile. COLLATERALIZED INVESTMENT AGREEMENT PROVIDER: AEGON is the investment agreement provider, whose obligations have been collateralized. RATING SENSITIVITY CHANGE IN COUNTERPARTY RATINGS: The long-term rating on the bonds will continue to be determined by Fitch's assessment of the transaction structure, the role of the remaining counterparties in the structure, and their credit quality. CREDIT PROFILE The proceeds of the series 2007A bonds were used to prepay the gas supplier (MLCI) for specified quantities of natural gas, deliverable to MSNG over a period of 20 years and eight months. Bondholders rely on the supplier to deliver the gas or make a cash payment to the issuer in lieu of delivery over the life of the bonds. MSNG, in turn, delivers the gas to MGAG who is obligated to purchase delivered gas as an operating expense of its system. COMMODITY SWAP AGREEMENT TO HEDGE PRICE RISK To hedge the risk of changes in gas prices, MSNG has entered into a commodity swap agreement with RBC, exchanging a monthly index price for a fixed price. RBC has separately entered into a back-to- back swap agreement with MLCI, exchanging a fixed price for a floating natural gas price. STRUCTURE DESIGNED FOR TIMELY PAYMENT The bonds are structured with provisions that provide for timely payment of debt service, regardless of changes in natural gas prices or the physical delivery of gas by MLCI (since financial payments will be due from MLCI in certain cases of non-delivery of gas). Payments due from MGAG, together with those required under the debt service fund agreement, are sufficient to meet debt service requirements. Payments due from MLCI (backed by BAC) upon early termination, together with other available funds, are also expected to equal an amount sufficient to pay off the bonds plus accrued interest. The funds required to pay the termination payment will be provided by MLCI and guaranteed by BAC. Additional information is available at 'fitchratings.com '. Applicable Criteria and Related Research : --'Criteria for Rating Prepaid Energy Transactions,' dated July 26,; --'Municipal Gas Authority of Georgia ' dated Sept. 12, 2012 . Applicable Criteria and Related Research : Criteria for Rating Prepaid Energy Transactions http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=714538 Municipal Gas Authority of Georgia (Gas Revenue Bond) http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=688324 Additional Disclosure Solicitation Status http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=810948 ((Comments on this story may be sent to firstname.lastname@example.org ))
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