Fitch Rates Duke Energy Florida Project Finance, LLC

CHICAGO--()--Fitch Ratings has assigned the following ratings and Outlooks for Duke Energy Florida Project Finance, LLC:

--Series A 2018 $183,000,000 'AAAsf'; Outlook Stable;

--Series A 2021 $150,000,000 'AAAsf'; Outlook Stable;

--Series A 2026 $436,000,000 'AAAsf'; Outlook Stable;

--Series A 2032 $250,000,000 'AAAsf'; Outlook Stable;

--Series A 2035 $275,290,000 'AAAsf'; Outlook Stable.

Security for the bonds will be the nuclear asset-recovery property, which includes the irrevocable right to impose, bill and collect the nuclear asset-recovery charges (NARCs) from all customers of DEF's service territory in Florida.

Details regarding the NARC bonds, as well as Fitch's stress and rating sensitivity analysis, are discussed in the presale report titled 'Duke Energy Florida Project Finance, LLC', dated June 8, 2016, which is available on Fitch's web site. The presale report details how Fitch addresses the key rating drivers which are summarized below.

KEY RATING DRIVERS

Statutory and Regulatory Framework: The strength and stability of the underlying NARCs are established by the financing order issued by the Florida Public Service Commission. The financing order establishes the irrevocable, binding, and nonbypassable NARCs and defines bondholders' property rights in the nuclear asset-recovery property. The financing order contains the key elements important in a utility tariff securitization.

Adequate Credit Enhancement via True-Ups: Mandatory semi-annual true-up filings adjust NARCs to ensure collections are sufficient to provide all scheduled payments of principal and interest, pay fees and expenses and replenish the capital subaccount (0.50%). Furthermore, quarterly and interim true ups may occur if necessary but must meet certain defined parameters.

Supports 'AAAsf' Stresses: Demand shifts in consumption can be caused by various factors, such as the introduction of new technologies, general economy, impacts from natural disasters, demographic changes or shifting usage patterns, which present risk in this asset class, given the longer tenor of the nuclear asset-recovery bonds.

Fitch's 'AAAsf' scenario analysis stresses key model variables, such as consumption variance, chargeoff rates and delinquencies, to address this risk. Under Fitch's 'AAAsf' stress assumptions, the peak NARC for the Series A bonds is 7.57 (cents/kWh), or 6.99% of the residential customer bill, which is consistent for 'AAAsf' ratings.

Sound Legal Structure: Fitch reviews all associated legal opinions furnished to analyze the integrity of the legal structure.

RATING SENSITIVITIES

While Fitch believes that bondholders are protected from the various aforementioned risks based on the 'AAAsf' cash flow stress case, the break-the-bond case provides an alternative means by which to measure the potential effects of rapid, significant declines in power consumption while capping the residential NARC at 20% of the total residential customers' bill.

In this scenario, the structure is able to withstand a maximum consumption decline of approximately 71.5% in year one. This is the level of forecast energy consumption decline that would cause a default in required payments on bonds or cause the NARC to exceed 20% of the total residential customers' bill. Despite this severe decline in consumption, due to the true-up mechanism, NARCs are able to pay all debt service by the legal final maturity date.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Key Rating Drivers and Rating Sensitivities are further described in the presale report dated June 8, 2016. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'Duke Energy Florida Project Finance, LLC - Appendix'. These R&Ws are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated May 31, 2016.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, available at 'www.fitchratings.com' or by clicking on the above link.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875586

Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878412

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating Criteria for U.S. Utility Tariff Bonds (pub. 21 Dec 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875393

Related Research

Duke Energy Florida Project Finance, LLC - Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882566

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1007854

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1007854

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Du Trieu
Senior Director
+1-312-368-2091
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Secondary Analyst
Yun Tian
Associate Director
+1-212-908-0307
or
Committee Chairperson
Tracy Wan
Managing Director
+1-212-908-9171
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Du Trieu
Senior Director
+1-312-368-2091
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Secondary Analyst
Yun Tian
Associate Director
+1-212-908-0307
or
Committee Chairperson
Tracy Wan
Managing Director
+1-212-908-9171
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com