Fitch Affirms Juniper Generation at 'BB+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Juniper Generation, LLC's (Juniper) $206 million ($4.23 million outstanding) senior secured notes due December 2014 at 'BB+'. The Rating Outlook remains Stable.

The rating affirmation is based upon Fitch's view that Juniper is likely to generate adequate cash flow to meet its final scheduled debt service payment without drawing on its debt service reserve backed by a letter of credit equal to six months of debt service.

KEY RATING DRIVERS

Revenue Risk: Weaker

Revenues are fully contracted with capacity and energy payments from investment grade utility offtaker, Pacific Gas and Electric (PG&E, IDR 'BBB+' with a Stable Outlook). Exposure to fluctuations in power pricing is mitigated by established heat rates under the short run avoided cost (SRAC) formula. The project, however, remains exposed to fluctuations in gas prices, which also affect the power prices. Amid an environment of continuing low gas prices, dispatch can be reduced to minimize negative margins.

Operating Risk: Midrange

Operating performance has been generally adequate as Juniper has met offtaker requirements to be available during peak periods (May-October). Some of the plants, however, have experienced intermittent extended forced outages from 2011 through 2014 outside peak month periods. Decline in portfolio diversification exacerbates the project's exposure to event risks such as forced outages.

Supply Risk: Midrange

The plants are able to secure adequate fuel supply at market price.

Debt Structure: Midrange

The fixed-rate, fully amortizing debt is a typical project financing structure. The declining debt profile mitigates fewer assets remaining in the portfolio.

Financial Results

Fitch projects a 2014 debt service coverage ratio (DSCR) of 1.46x under Fitch's base case expectations and 1.19x under Fitch's rating case financial scenario of low power prices and higher operating costs. The 2014 projected rating case DSCR is low for the current rating level but sufficient to meet the last debt service payment.

Peer Comparison

Juniper's DSCR profile is similar to Lea Power ('BB+', Outlook Stable) but Juniper is exposed to market price risk while Lea Power has been challenged to control its cost profile. CE Gen ('BB-', Outlook Negative) is exposed to market pricing like Juniper but CE Gen's lower rating is attributable to its structural subordination to project-level debt, resulting in DSCRs that are lower than Juniper's.

RATING SENSITIVITIES

Negative - Severely Weakened Operations: An extended forced outage that compromises the ability to meet the final payment could lead to a downgrade but is mitigated by the availability of the debt service reserve.

Positive: A rating upgrade is unlikely.

CREDIT UPDATE

Of the nine assets that originally formed the Juniper Generation portfolio, only Bear Mountain and Corona remain. As expected, individual plants have been removed from the note's collateral as their respective PPAs expired. These projects no longer contribute equity distributions to service Juniper's debt obligations. Support for Juniper's debt is also derived from equity distributions from the WCAC operating company, which provides operations and maintenance services to Juniper's assets.

Bear Mountain's 2013 performance was low compared to historical performance with availability and capacity factors at 62.3% and 55%, respectively. Bear Mountain's availability and capacity factors through May 2014 improved to 91% and 76.8% respectively. Bear Mountain's output was affected by management reducing dispatch amid low power prices as well as timing of equipment deliveries and needed repairs. In November 2012, Bear Mountain incurred an outage due to power turbine bearing failure, returning to service in April 2013. Since the plant was not ordered to be dispatched during this time, Bear Mountain received its full capacity payments from PG&E. In 2014, the operator repaired a transformer at Bear Mountain ending a one-month outage in February.

The June 2014 DSCR was 1.43x and the annual 2013 senior DSCR was 1.44x, lower than the 2012 level of 1.58x. Solid DSCR coverage in the first half of 2014 (1H'14) and 2013 is mainly attributable to distributions from the WCAC operating company, Bear Mountain achieving full capacity payments despite outages, and management's flexibility to minimize dispatch during uneconomic, low-power price periods. Fitch expects Juniper to generate sufficient cash flow through the remainder of the year to meet its final debt service payment and retire the rated debt.

Juniper is a special purpose company created solely to issue the secured notes and hold a portfolio of equity interests in nine gas-fired cogeneration plants and two service companies. The facilities, located in southern California, sell energy and capacity to PG&E and Southern California Edison (SCE; IDR 'A-' with a Stable Outlook) under PPAs expiring through 2018. There is no debt at the individual projects' level.

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

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);

--'Rating Criteria for Thermal Power Projects' (June 17, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for Thermal Power Projects

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710786

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=840532

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Contacts

Fitch Ratings
Primary Analyst
Yvette Dennis
Senior Director
+1-212-908-0668
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Chris Joassin
Director
+1-312-368-3166
or
Committee Chairperson
Gregory Remec
Senior Director
+1-312-606-2339
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Yvette Dennis
Senior Director
+1-212-908-0668
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Chris Joassin
Director
+1-312-368-3166
or
Committee Chairperson
Gregory Remec
Senior Director
+1-312-606-2339
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com