The Tennessee Energy Acquisition Corp. on Monday announced that it received consent from a majority of bondholders to make changes in the indenture and the gas-purchase agreement relating to its Series 2006A and B bonds.
The amendments are designed to return ratings on the 2006A bonds to investment grade by reducing reliance on the performance of project participants MBIA Inc. and Depfa Bank PLC as the investment-agreement providers for various reserve accounts.
The deal with bondholders reduces reliance on ratings of MBIA and Depfa, and provides additional support through other counterparties if reserves are insufficient or unavailable.
TEAC issued $1.99 billion of 2006A pre-pay gas bonds, which were rated AA-minus by Fitch Ratings, Aa3 by Moody’s Investors Service and A-plus by Standard & Poor’s.
At the same time, the energy authority issued $132.5 million of unrated Series 2006B subordinate bonds. In 2009, Fitch assigned a BBB as the first and only rating on the subordinate debt.
Rating agencies began downgrading the 2006A bonds in 2008 based on each agency’s evaluation of certain project participants subject to downgrades as the credit crisis developed.
The ratings eventually fell to junk levels.
Moody’s upgraded its rating to A2 from Ba3 on Wednesday based on the changes that bondholders approved in the indenture and gas-purchase agreement.
Standard & Poor’s currently assigns a B but was expected to upgrade its rating to A-minus, according to TEAC.
Fitch is expected to maintain a rating of at least BBB on the subordinate bonds, the utility said.
The authority is a nonprofit corporation in Tennessee that provides natural gas for 21 associated municipalities, as well as the state.
The 2006 bonds were sold to finance gas to 17 municipalities and nine other municipal gas systems or joint-action agencies in the Southeast.