Fitch: Outlook to Negative on Northern California Gas Authority No. 1 After Morgan Stanley Downgrade

Business Wire, Oct 14, 2008

NEW YORK -- Fitch maintains the 'A' rating on Northern California Gas Authority No. 1 2007A,B prepay gas project bonds and revises the Outlook to Negative from Stable. The Outlook revision on the prepay bonds reflects Fitch's downgrade of Morgan Stanley's Issuer Default Rating (IDR) to 'A' from 'AA-'/Negative Outlook. Morgan Stanley's downgrade primarily reflects Fitch's assessment that challenges in profitability and funding remain despite the additional capital injection from Mitsubishi UFJ (for more information see press release dated October 13, 2008).

The long-term rating and Outlook on the prepay bonds is determined by Fitch's assessment of the structure, the role of each counterparty in the structure, and their credit quality. In this transaction, bond proceeds were used to prepay for a 20 year supply for Sacramento Municipal Utility District (purchaser, rated 'A' by Fitch) to be supplied by Morgan Stanley Capital Group Inc. (MSCG). Morgan Stanley is the guarantor of MSCG's obligations as gas supplier and remarketer as well as its obligation to make a termination payment in the event that the gas purchase agreement is terminated. Morgan Stanley also acts as the Interest Rate Swap provider and Guaranteed Investment Provider in this transaction. The Commodity Swap Provider is the Royal Bank of Canada ('AA').

For additional details regarding this transactions, please see the report available on the Fitch Ratings web site www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. 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.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. 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.