CHICAGO--()--Fitch Ratings upgrades East Coast Power LLC's (ECP) $318 million ($166.9 million outstanding) senior secured notes due June 2017 to 'BBB+' from 'BBB'. The Rating Outlook is Stable.
The upgrade to 'BBB+' reflects ECP's ability to consistently meet or exceed the Fitch base case financial and operational performance estimates. The project's stable operating profile and strong operating agreements provide a resilient stream of cash flows and forecasted debt service coverage ratios (DSCRs) consistent with the revised rating.
KEY RATING DRIVERS:
--Revenue Stability: ECP's cash flows are derived from two power purchase agreements (PPAs) with investment-grade counterparties for the majority of capacity, power, and steam output. The PPAs limit the project's exposure to dispatch and energy price risks through the debt term.
--Strong Operating Cost Profile: The project's PPAs provide for the recovery of substantially all fuel and O&M costs. Fuel costs at Linden Venture are subject to Consolidated Edison's (ConEd) weighted average cost of gas (WACOG), which exposes the project to some fuel pricing risk. However, General Electric International, Inc., the project operator and sponsor affiliate, has been proactive in improving its purchasing program and operations resulting in approximately six years of favorable WACOG spreads.
--Solid Operating Performance: The project's strong historical operating performance illustrates the sponsor and operator's commitment to maintaining the facilities' long-term performance. Linden Venture and Linden 6 have been in operation since 1992 and 2002, respectively, with limited operational issues and forced outages. Fitch notes ECP's ability to consistently maintain strong availability factors and heat rates.
--Consistent Financial Performance: ECP's cash flow available for debt service has generally outperformed the project's original base case projections. Fitch rating case DSCRs based on low gas prices, as well as operational stresses, suggest coverage averaging nearly 3.0 times (x), consistent with the assigned rating category. Fitch notes that the declining debt service profile of the senior bonds provides the project additional financial flexibility.
WHAT COULD TRIGGER A RATING ACTION
--Negative Gas Price Spreads: A failure to consistently manage purchased gas prices below ConEd's WACOG resulting in reduced financial flexibility in the Fitch rating case
--Issuance of Project Debt: New project-level debt issued at Linden Venture and Linden 6
--Off-taker Rating Action: A downgrade of ConEd's credit rating
Bondholders are secured by a pledge of equity interests in the general and limited partnerships that hold the Linden facilities and ECP's equity ownership. Fitch notes that cash distributions from the Linden facilities to ECP are structurally subordinated to project-level debt service. Currently, there is no project-level debt outstanding or expected during the debt term.
ECP has consistently outperformed the Fitch base case forecasted DSCRs due to management's ability to maintain strong operational performance and manage the WACOG spread and O&M costs. The project continues to exhibit heat rates and availability factors generally consistent with historical results. Fitch believes that ECP benefits from the experience and capabilities of the sponsor and operator affiliate to maintain operational performance. Fitch expects operational metrics to remain stable through the debt term.
ECP owns interests in two gas-fired cogeneration facilities in Linden, New Jersey. Linden Venture sells up to 645 megawatts of capacity and energy to Consolidated Edison Company of New York, Inc. (IDR rated 'BBB+' with a Stable Outlook by Fitch) under a PPA expiring in May 2017 with two five-year renewals. The project also supplies steam to a ConocoPhillips (COP; IDR rated 'A' with a Stable Outlook) affiliate refinery and Infineum USA petrochemical facility. Linden 6 provides steam to Linden Venture and up to 85 megawatts of electricity to the COP affiliate refinery under a PPA expiring April 2017. General Electric International, Inc. was retained under a fixed-fee, long-term contract expiring May 2017 to operate, maintain and provide scheduled maintenance and inspections of the project facilities.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012)
--'Rating Criteria for Thermal Power Projects' (June 18, 2012)
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Thermal Power Projects