Fitch Affirms PPL Montana, LLC at 'BBB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating of PPL Montana, LLC's (PPLM) pass-through trust certificates due 2020. The Rating Outlook is Stable.

Rating Rationale:

--Strong financial performance in which fixed coverage charge ratios (FCCR) averaged 2.93 times (x) over the last nine years, including 2.55x in 2010;

--Fitch projects FCCRs averaging 2.10x under low merchant power prices as hedges expire with material merchant exposure beginning in 2013;

--Solid operating performance from a diverse portfolio of coal and hydro assets;

--Hydro assets benefit from favorable dispatch;

--Exposure to potential increases in coal prices are mitigated by most of the coal supply coming from a mine mouth facility;

--Financial pressure from PPLM's $355 million five-year (2011-2015) capital plan is mitigated by near completion of the Rainbow Dam expansion and the flexibility to delay other capital expenditures to minimize the impact on cash flow if necessary; and

--Adequate cash reserves and liquidity facilities to meet potential obligations rising from a pending litigation regarding hydro rents against the state of Montana.

Key Rating Drivers:

--Impact of merchant power prices on PPLM's financial performance as hedges expire;

--Significant reductions in plant operating performance; and

--Expenses (e.g. capital expenditures and adverse legal judgments) that materially erode cash flow.

Security:

Though security for the rated debt is limited to the owner-lessors' interests in Colstrip, PPLM's obligation to pay rent is a general unsecured obligation of PPLM. As such, revenue derived from operation of the entire portfolio is available for rent payments.

Credit Summary:

PPLM owns, operates and leases a portfolio of 13 hydroelectric and coal-fired generating facilities with an aggregate capacity of 1,239 MW. The PPLM portfolio includes 11 hydro projects, a storage reservoir, the coal-fired Corette facility and the owner-lessors' share of the Colstrip coal facility.

The pass-through certificates were issued by a pass-through trust to fund the owner-lessor's acquisition of the leased Colstrip assets, which represent 25% of Colstrip's 2,094-MW capacity and 43% of PPLM's total portfolio capacity. Rental payments include equity payments to the owner-lessors and annual debt service on the trust certificates maturing in 2020.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance', dated Aug. 16, 2010.

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345

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