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Fitch Rates Florida Gas Utility's 2006 Acquisition Project No. 2 Revs 'AA+/F1+'.

NEW YORK -- Fitch Ratings assigns a rating of 'AA+/F1+' to the Florida Gas Utility's (FGU) $670,000,000 Gas Supply Acquisition Project No. 2 revenue bonds, which consist of the following:

-- $268,000,000 2006 series A-1;

-- $134,000,000 2006 series A-2;

-- $134,000,000 2006 series A-3;

-- $134,000,000 2006 series A-4.

The long-term 'AA+' rating on the bonds is based on the long-term issuer default rating that Fitch currently assigns to UBS AG (UBS). Through a Gas Purchase Agreement (Purchase Agreement) between UBS and FGU, UBS is unconditionally obligated to pay a final termination payment to the trustee sufficient to fully redeem the bonds in any event of termination of the Purchase Agreement. The short-term 'F1+' rating on the bonds is based on the liquidity support provided severally by Calyon, acting through its New York Branch, Dexia Credit Local, acting through its New York Branch and UBS, acting through its Stamford Branch, in the form of a standby bond purchase agreement (SBPA). Fitch's short-term rating on the bonds will expire upon the earlier of Sept. 19, 2011, the expiration date of the SBPA, unless such date is extended, or upon any prior termination of the SBPA.

The SBPA provides for the payment of the purchase price of tendered bonds during the daily, weekly and CP interest rate modes in the event that remarketing proceeds are insufficient following an optional or mandatory tender of the bonds. The SBPA initially is sized to cover the principal amount of the bonds, plus interest equivalent to 37 days calculated at a maximum rate of 10%, based on a year of 365 days. Conversion to a CP rate mode requires an increase in the available interest component of the SBPA. The remarketing agents are UBS Securities LLC for 2006 series A-1, Banc of America LLC for 2006 series A-2, Bear, Stearns & Co. Inc for 2006 series A-3 and Goldman, Sachs & Co. for 2006 series A-4. The bonds are expected to be delivered on or about Sept. 20, 2006.

The bonds will be issued in the weekly rate mode, but may be converted to a daily, CP, auction or fixed rate of interest. While bonds bear interest at the weekly rate, interest is payable on the third business day of each month, beginning Oct. 4, 2006. During the weekly and daily rate modes, bondholders have the right to tender their bonds on any business day, following the required prior notice to the tender agent and the remarketing agent. Bonds are subject to mandatory tender upon: conversion of the interest rate mode, expiration, termination or substitution of the liquidity facility, and rate adjustment dates while in the CP mode. The bonds are also subject to mandatory sinking fund redemption and optional redemption pursuant to the terms of the Indenture of Trust.

The long-term rating reflects bondholder reliance on timely principal and interest payment from the commodity swap provider (Calyon) to FGU (which are supported by payments from UBS to Calyon paid on the same day), UBS' ability to meet its obligation to make a final termination payment in the event a termination of the project occurs for any reason, and reserve funds sufficient to pay bondholders between any potential timing delay between a termination of the Purchase Agreement and redemption of bondholders. Fitch is satisfied that the debt service reserve fund, the only legally required reserve fund, is sized to provide timely payment of principal and interest on the bonds under various gas pricing levels, swap counterparty default, FGU participant default, and the possible short-term disruptions of gas supply resulting from a UBS non-delivery or Force Majeure. To test the adequacy of reserves, Fitch evaluated several stress scenarios including a simultaneous default by multiple parties. It is Fitch's view that the sufficiency of the reserve fund results in a long-term credit risk to bondholders that depends solely on UBS' obligation to make a final termination payment.

The Gas Supply Acquisition Project No. 2 is FGU's second prepaid natural gas transaction. In this project , it will acquire a 20-year supply of natural gas for sixteen of its members. The structure allows FGU participants to secure monthly natural gas volumes, on a take and pay basis, at a fixed discount to the regional market index price. The price of the prepaid gas will vary with the market over the transaction term, but the discount will remain constant.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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Comment:Fitch Rates Florida Gas Utility's 2006 Acquisition Project No. 2 Revs 'AA+/F1+'.
Publication:Business Wire
Geographic Code:4EXSI
Date:Sep 14, 2006
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