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Fitch Rates Main Street Natural Gas' 2007A1-A4 Project Revs 'AA-'

Business Wire, Sept 4, 2007

NEW YORK -- Fitch Ratings has assigned an 'AA-' rating to the Main Street Natural Gas, Inc.'s (Main Street) gas project revenue bonds, series 2007A-1, 2007A-2, 2007A-3 and 2007A-4. The rating and Fitch's analysis assumes the final documents will be in a form satisfactory to Fitch and consistent with the structure described below. The bonds are expected to price this week, with Merrill Lynch as the senior manager. The Rating Outlook is Stable.

Main Street is a Georgia non-profit corporation, authorized to act on the behalf of the Gas Authority under IRS Regulations and sell gas to participating utilities. Bond proceeds will be used by Main Street to prepay for a specified supply of natural gas for 20 years to be delivered by Merrill Lynch Commodities Inc. (MLCI). Merrill Lynch and Co., Inc. (Merrill Lynch rated AA-, Stable) will guarantee the performance of MLCI.

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Given the structured nature of the transaction, the 'AA-' rating reflects the lowest rating of: the guarantor of MLCI obligations as the gas supplier and remarketer (Merrill Lynch); the commodity swap provider Calyon (rated 'AA,' Stable), the surety bond provider covering a participant default until the gas can be remarketed (XL rated 'AAA' with a Stable Outlook by Fitch), and the GIC provider (rated at least 'AA-'). The performance of Main Street is not a material factor in the rating given the support provided by the customer insurance policy that sufficiently covers a default by the Gas Authority until the gas is available to be remarketed by MLCI, at a price guaranteed to be no less than contract price, for the benefit of bondholders. While the guaranteed investment contract (GIC) has not been selected, the rating takes into account the expected rating of the GIC provider (expected to be at least 'AA-'). In addition, several factors limit the impact of this counterparty's rating on this structure. Those factors include a rating trigger of 'A+' where the GIC provider would have to be post collateral or be replaced with another qualified provider at a rating level of at least 'AA-'.

These bonds are limited obligations of Main Street and are payable only out of the Trust Estate. The bonds do not constitute a debt, liability or loan of the credit of the State or any political subdivision thereof, including Main Street or its members. The Trust Estate includes proceeds from the bond sale, all right, title and interest in the gas purchase agreement, the commodity swap, and the interest rate swap, and all funds held by the trustee. Revenues include: all revenues, income and receipts derived by Main Street under the gas supply agreements (from the sales of gas to the customers) and the gas purchase agreement, and commodity and interest rate swap receipts.

Bondholder security is provided in the transaction structure outlined in:

--The gas purchase agreement between MLCI and Main Street that requires MLCI to supply 20 years of a fixed amount of gas supply in return for a prepayment made from bond proceeds,

--The gas supply contract between Main Street and the customers that requires the customers to pay for any gas delivered by MLCI to Main Street at a price equal to market index minus a fixed discount,

--The commodity swap between Main Street and Calyon that is designed to hedge the risk of natural gas price differences between the fixed rate paid by Main Street as a prepayment in the gas purchase agreement and the market index price paid over the next 20 years by the customers,

--The trust indenture between The Bank of New York Trust Company and Main Street that outlines certain commitments to bondholders, including extraordinary redemption of the bonds in the event of an early termination of the gas purchase agreement for any reason, the establishment of a customer insurance policy from XL that is sized sufficiently to protect bondholders from customer payment defaults, and the priority of debt service payments enjoy in lien status over that of the swap counterparty.

--While there is an uncollateralized guaranteed investment contract, expected to be bid at the time of pricing, that will invest debt service fund deposits with the provider in return for a guaranteed investment return, the earnings from this contract are not included in the contract price discount.

Differences to Note:

Fitch has rated several prepay transactions in the past year. While the transactions are similar in many ways, there are several variations. Below are listed some unique characteristics of the Main Street prepay structure.

--Weaker threshold regarding swap provider.

--The commodity swap provider can fall to 'A-/A3' before being required to provide 'adequate assurance' to Main Street that it can continue to perform. Fitch does not view this as a firm collateral posting requirement.

--Main Street has 120 days to replace the swap provider with the replacement provider rated 'A/A2' or higher.

--In the event of a swap provider default Main Street has 60 days to find a replacement provider rated 'A/A2' or higher. If a replacement is not found in either case within the provided cure period there is an automatic termination of the GPA.

Business Services Industry

Fitch Rates Main Street Natural Gas' 2007A1-A4 Project Revs 'AA-'

Business Wire, Sept 4, 2007

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