Moody's Assigns Baa2 Rating to Public Energy Authority of Kentucky's Gas Supply Revenue Bonds

Strategic Insights -

The Public Energy Authority of Kentucky's Gas Supply Revenue Bonds, 2025 Series B, have been assigned a Baa2 rating by Moody's Investors Service. The rating takes into account several factors, including the credit quality of Jefferies Financial Group Inc. as guarantor of the funding agreement and the structure and mechanics of the transaction. The bonds will be used to prepay natural gas deliveries to GNM Energy Prepay I LLC and will be repaid through monthly payments under the funding agreement.

Key Takeaways:

  • The Baa2 rating is based on the credit quality of Jefferies Financial Group Inc. (Baa2) as guarantor of the funding agreement and the structure and mechanics of the transaction.
  • The rating takes into account the credit quality of the provider of the investment agreement, which will initially be rated by Moody's at a level that supports the rating on the bonds.
  • The bonds will be used to prepay natural gas deliveries to GNM Energy Prepay I LLC, and the prepayment amount will be used to purchase a funding agreement issued by Jefferies Capital Services, LLC.
  • The obligations of Jefferies Capital Services, LLC under the funding agreement are fully guaranteed by Jefferies Financial Group Inc.
  • The bonds will be subject to mandatory tender on May 1, 2033, and may be converted to various interest rate modes following the initial rate period.
  • The rating terminates on the mandatory tender/redemption date at the end of the initial interest rate period, which is scheduled to end on April 30, 2033.
  • The Gas Supplier (as buyer) enters into a Gas Management Agreement with Citadel Energy Marketing LLC (as seller) for the actual delivery of gas.
  • The Front-End Commodity Swap and the Back-End Commodity Swap provide for steady cash flows and reduce the risk of non-payment of delivered gas by the Participant.
  • Various events under the Prepaid lead to a Gas Delivery Termination Event and/or an Early Termination Payment Event, which have specific consequences for the bonds.

Statistics:

  • Initial interest rate period: scheduled to end on April 30, 2033
  • Mandatory tender date: May 1, 2033
  • Rating termination date: mandatory tender/redemption date at the end of the initial interest rate period, which is scheduled to end on April 30, 2033
  • Funding Agreement payments: sufficient to pay debt service on the bonds and cover the Back-End Commodity Swap payments
  • Commodity Swap Provider payments: guaranteed by Jefferies Financial Group Inc.
  • Prepayment amount: used to purchase a funding agreement issued by Jefferies Capital Services, LLC

Sources:

  • Moody's Ratings (Moody's)
  • The Public Energy Authority of Kentucky (the Issuer)
  • Jefferies Financial Group Inc. (JFG)
  • Jefferies Capital Services, LLC (JLLC)
  • GNM Energy Prepay I LLC (the Gas Supplier)
  • Citadel Energy Marketing LLC (as seller)
  • Moody's Ratings Methodology: US Gas Prepayment Bonds, published in March 2024
  • https://ratings.moodys.com/rmc-documents/416488