Municipal Natural Gas Prepayment Deals

The second largest holding in the NAZ muni ETF is Citigroup Energy I: Salt Verde Prepay. Here's an article from 2008 about municipal natural gas prepayment deals:

A gas prepayment is a contract under which an agreed amount of discounted gas is supplied over a period that can range from 10-30 years. Crucially, the main difference between a typical commercial prepayment transaction and one involving a municipal utility or public agency is that the latter purchase is financed through the issuance of tax-exempt bonds.

"A public agency can issue such bonds and then use the proceeds to prepay for a specified, predetermined stream of natural gas," says Troy Black, managing director of financial products at BP in Houston. "The municipality passes the proceeds of the bond issuance by virtue of prepayment to a prepay supplier, which then has the obligation to deliver a steady stream of gas."

The article has a hilarious quote: "The market interest rate spreads are not currently conducive to meeting some of the economics that people became accustomed to by the middle of 2007"

"Fitch Affirms Banner Health System's (AZ) Rev Bonds at 'AA-'; Outlook Stable" $NAZ

Good to know - this Banner hospital bond is largest holding of the NAZ muni fund:

"STRONG AND CONSISTENT PROFITABILITY: Despite continued revenue pressure from lower volume, Banner has been able to maintain strong and consistent operating results that exceed Fitch's 'AA' category medians. From 2010-2013, Banner has generated operating margins between 5% and 6.1% and operating EBITDA margins between 13.1% and 14.6%, which is well in excess of the respective 'AA' category medians."