S&P assigns A rating to TexGas I bonds

Standard & Poor's said it assigned an A secured debt rating to the proposed issuance of $1.323 billion series 2008D fixed-rate gas supply revenue bonds by Texas Municipal Gas Acquisition and Supply Corp. (TexGas I).

S&P also affirmed its A secured debt rating on TexGas I's $485 million series 2006A fixed-rate bonds and $1.851 billion series 2006B variable-rate gas supply revenue bonds. The outlook is negative.

The primary purpose of the tender and exchange offer is to provide bondholders an opportunity to exchange their variable-rate bonds for fixed-rate securities. The tender and exchange offer will result in the redemption of $1.58 billion of the 2006B bonds and $42.6 million of the 2006C bonds and the issuance of $1.32 billion of fixed-rate 2008D bonds.

At the same time, the cash portion of the debt service reserve fund related to the redeemed 2006B bonds will be replaced by a funding agreement guaranteed by Merrill Lynch. A pro rata cash-funded debt service reserve fund will continue to support the 2006A and 2006B bonds that remain outstanding. Upon closing, the 2006A, 2006B and 2006D bonds will be secured on a parity basis.

Proceeds from the issuance of the 2008D bonds not exchanged for the 2006B bonds will fund payments for the 2006B and 2006C bonds tendered for cash, payments to the interest rate swap counterparty related to the proportionate reduction in the interest rate swap, the cost of issuance and other transaction costs.

The rating on TexGas I's bonds is tied to the rating of Merrill Lynch, which guarantees the performance of the gas supplier and the interest rate swap counterparty. The negative outlook reflects the current outlook on Merrill Lynch.

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