(The following statement was released by the rating agency)
Jan 14 - Standard & Poor's Ratings Services today lowered its rating on East Cameron Gas Co.'s $165.67 million investment trust certificates (Sukuk) series 2006 to 'CC' from 'CCC+' and placed it on CreditWatch with negative implications.
The downgrade reflects the negative impact of the Sept. 3, 2008, hydrocarbon mix shortfall enforcement event on the overriding royalty interest in oil and gas reserves (ORRI), which is the primary collateral for the Sukuk. This enforcement event was triggered by the breach of the 90% minimum stressed reserve level of the hydrocarbon mix threshold stipulated in the transaction documents. An accelerated payment schedule went into effect after a 30-day cure period for the enforcement event expired, which shifted the scheduled Sukuk return to monthly pay from quarterly pay.
The negative CreditWatch status reflects the fact that we are conducting an ongoing review of all related financial and reporting information available as we monitor the impact on East Cameron Gas Co.'s securitization. The initial 'CCC+' rating assigned to the securitization reflected credit enhancement available through production coverage, reserve and other accounts, gas price hedges, gas hedge letter of credit, and off-take agreements.
On Oct. 16, 2008, East Cameron Partners L.P. (ECP), the originator of the East Cameron Gas Co. securitization, filed a voluntary petition for Chapter 11 bankruptcy. ECP also initiated an adversary proceeding asking for relief from its obligations under the securitization purchase and sale agreement, and essentially requested to re-characterize the sale of the ORRI to the East Cameron Gas Co. securitization as a secured loan. The bankruptcy court has since entered a preliminary injunction prohibiting the purchaser special purpose vehicle (SPV) (Louisiana Offshore Holding LLC), the issuer SPV (East Cameron Gas Co. Sukuk Trust), and the collateral agent from exercising any remedies on the ORRI, pending a final determination in that adversary proceeding. At the time the transaction closed, a legal opinion was delivered concluding that ECP had transferred the ORRI to the purchaser SPV in a true sale.
Standard & Poor's is monitoring the court proceedings and assessing the impact of ECP's Chapter 11 filing on the transaction's cash flow. We have asked ECP, the issuer SPV manager, and share trustee, the collateral agent, and the transaction administrator to provide all legal filings, servicing reports, transaction event timelines, and supporting data. If we do not receive the required information in a timely manner, we may initiate further rating actions.
For further information regarding this transaction, please refer to our new issue report, "New Issue: East Cameron Gas Co.," dated Aug. 10, 2006, available on RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. Primary Credit Analysts: John Lampasona, New York (1) (212) 438-3619;
Cristal E Jones, New York (1) 212-438-1128;
email@example.com Secondary Credit Analyst: Gary Kochubka, New York (1) 212-438-2514;
firstname.lastname@example.org (New York Ratings Team)