Standard & Poor’s has lowered the rating on Main Street Gas pre-pay bonds, series 2008A to “CCC-” from “A”. The downgrade results from Lehman Brothers Holdings, Inc. (LBHI), announcement that it has filed for bankruptcy. The rating remains on Negative Credit Watch.
Lehman Brothers Commodity Services (LBCS), the commodities trading unit of Lehman, has contracted with Main Street to deliver natural gas over a 30-year period for an upfront, pre-paid price. Main Street’s Series 2008A bonds funded the pre-paid contract. LBHI guarantees the obligations of LBCS. According to S&P, LBCS has not defaulted on its obligations under its gas supply contract with Main Street.
Since LBCS was not included in the bankruptcy filing, it is not in default of its obligations at this time. However, LBCS is required under the gas supply contract, within a 10-day period, to post significant collateral as a result of Lehman Brothers Holdings’ downgrade. If it is unable to do so, LBCS will be required to terminate the contract and pay Main Street a sufficient amount to fulfill its contract (if allowed by the bankruptcy court). Should another firm with a higher rating take over LBCS in that time frame, the rating could be raised.
The sudden unprecedented bankruptcy filing of one of Wall Street’s most historic firms comes in reaction to a loss of market confidence due to Lehman’s large exposure to risky real estate investments. Meetings over the weekend with federal government officials and leaders of other Wall Street firms failed to resolve what had become a major liquidity crisis.
FMSbonds will monitor the Lehman bankruptcy as it evolves and communicate our findings to bondholders. The Main Street bond issue referred to above has the following identification:
Main Street Natural Gas, Inc.
Gas Project Revenue Bonds, Series 2008A
Issue Maturity CUSIP
7/15/17 56036YED3
7/15/22 56036YEE1
7/15/28 56036YEF8
7/15/33 56036YEG6
7/15/38 56036YEH4