NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded Berkshire Wind Power Cooperative Corporation's (BWPCC, or the cooperative) $57.9 million of outstanding wind project revenue bonds, Berkshire series 1 to 'A+' from 'A'.
The Rating Outlook is Stable.
SECURITY
BWPCC revenues consisting primarily of payments made by Massachusetts Municipal Wholesale Electric Company (MMWEC, power supply project revenue bonds rated 'A+' with a Stable Outlook by Fitch) pursuant to a power sales contract (PSC) secure the bonds.
MMWEC's payment obligation is limited to the revenues it receives from 14 project participants under separate but identical power purchase agreements (PPAs). Each participant has covenanted to maintain rates sufficient to meet its obligations under its PPA.
KEY RATING DRIVERS
Participant Strength and Improved Operations: The rating upgrade reflects the project participants' continued economic and financial strength and stability, as well as BWPCC's improved asset operations to near forecast levels at start up. The project participants are also participants in MMWEC's nuclear projects, all of which Fitch rates 'A+'.
MMWEC Construct: MMWEC and 14 Massachusetts municipal light departments formed BWPCC to own the 15MW Berkshire Wind Energy Project, which became operational in May 2011.
Sound Contract Provisions: Unconditional, take-or-pay PPAs with the participants underpin the rating. The PPAs cover all project costs, including 110% of the bond fund requirement, and excess amounts are transferred to a reserve and contingency fund. A 25% step-up is sufficient to cover a default by any single participant, which limits bondholder exposure.
Good Participant Fundamentals: The participants, all of which are MMWEC members, serve a relatively stable, residential customer base showing strong income and employment indicators. Moreover, solid participant financials include an aggregate equity ratio approaching 100% of capitalization, given limited debt levels, and healthy coverage of full obligations near 1.4x (2013).
High Cost of Power: The project cost of power remains high (approximately 12 cents/kWh) relative to MMWEC's other generating projects but should improve commensurate with better asset performance. Moreover, the project is aligned with the commonwealth's emphasis on developing renewable sources of energy.
RATING SENSITIVITIES
CHANGING PARTICIPANT METRICS: An unlikely shift in the project participants' financial or economic metrics could lead to a rating change.
CREDIT PROFILE
MMWEC and the Massachusetts municipal light departments created BWPCC to finance, own, and operate the wind project. The participants are located in central and eastern Massachusetts and serve a typically small, residential customer base totaling nearly 110,000.
STRONG PARTICIPANTS
Strong project participants evidencing considerable financial wherewithal benefit the BWPCC project rating. High wealth indicators register more than 150% of the national average and low unemployment rates average 5.6% (Sept. 2014).
In addition, the participants' healthy financial positions should ultimately help ensure that BWPCC meets all financial commitments. Aggregate equity ratios equal nearly 100% of capitalization, as a result of limited debt levels. Cash on hand registers over 200 days, and coverage of full obligations is slightly more than 1.4x (2013).
The participants' retail rates are slightly more competitive than the state average, which provides revenue-raising flexibility to manage the full and timely recapture of costs. However, at nearly 12 cents/kWh the BWPCC project cost of power is high relative to MMWEC's five other generating projects.
TYPICAL JOINT ACTION AGENCY FINANCIALS
BWPCC's financial metrics are typical of many project-based joint action agencies. Slim cash flows near 1.0x - 1.1x annually allow the participants to retain strong equity levels. However, the cooperative's various sources of liquidity totaling more than 700 days cash on hand lend considerable support.
Unrestricted cash, including approximately $1 million for a project parts reserve, totals $1.5 million. In addition, a $1.5 million reserve and contingency fund is available for funding deficiencies or repairs. A debt service reserve is fully funded to maximum annual debt service ($5.4 million).
IMPROVED PROJECT PERFORMANCE
Improved asset performance near forecast levels at start-up benefits project fundamentals. The project capacity factor averaged 40.05% for the trailing 12-month period through October 2014, which is slightly stronger than industry standards and in line with initial forecasts.
Project capacity factors have gradually improved since component failures and storm outages affected performance in the initial years of operations. Moreover, the project should continue to benefit from typically favorable winter weather conditions.
The wind project, which is located on a 1,000-acre site along the ridgeline of Brodie Mountain, consists of 10, 1.5MW General Electric-manufactured wind turbines. The project became fully operational in May 2011 after some delay.
SOUND CONTRACT PROVISIONS
Sound contract provisions underpin the project rating and limit bondholder exposure to any single participant. MMWEC, acting as the agent for the cooperative, purchased the wind project and assigned its purchase rights to the cooperative in June 2008. The cooperative owns the project.
MMWEC purchases all of the project capacity and energy output, pursuant to a PSC between MMWEC and the cooperative. In addition, MMWEC agrees to pay all of the cooperative's related costs, including 110% of annual debt service requirements. MMWEC's obligation to make such payments is absolute and unconditional and extends the life of the bonds.
MMWEC and each of the participants have entered into separate take-or-pay, court-validated PPAs that obligate each participant to pay 100% of their allocated project share; the PPAs likewise extend the life of the bonds. Participants make payments in monthly installments, as part of annual operating expenses. The obligations are several, not joint. However, a 25% step-up provision provides additional bondholder protection, as noted.
Additional information is available at 'www.fitchratings.com'.
This rating action was informed by the sources of information identified in Fitch's U.S. Public Power Rating Criteria.
Applicable Criteria and Related Research:
--'U.S. Public Power Peer Study -- June 2014' (June 13, 2014);
--'U.S. Public Power Peer Study Addendum - June 2014' (June 13, 2014);
--'U.S. Public Power Rating Criteria' (March 18, 2014);
--'Fitch Affirms Massachusetts Municipal Wholesale Electric Co's Revs at 'A+'; Outlook Stable' (Sept. 13, 2013);
--'Massachusetts Clean Energy Cooperative Corporation' (April 11, 2013);
--'Berkshire Wind Power Cooperative Corp.' (November 29, 2010).
Applicable Criteria and Related Research:
U.S. Public Power Peer Study -- June 2014
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749789
U.S. Public Power Peer Study Addendum - June 2014
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750283
U.S. Public Power Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=740841
Massachusetts Clean Energy Cooperative Corporation
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=705476
Berkshire Wind Power Cooperative Corp. (Massachusetts Municipal Wholesale Electric Company)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=579625
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=929375
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