NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Berkshire Wind Power Cooperative Corporation's (BWPCC, or the cooperative) $55.8 million of outstanding wind project revenue bonds, Berkshire series 1 at 'A+'.
The Rating Outlook is Stable.
SECURITY
BWPCC revenues consisting primarily of payments made by Massachusetts Municipal Wholesale Electric Company 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 - all municipal electric systems and members of MMWEC - 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
PROJECT PARTICIPANT CREDIT FUNDAMENTALS: The rating reflects the project participants' continued economic and financial strength and stability. Solid participant financials include an aggregate equity ratio approaching 90% of capitalization, given limited debt levels, and healthy coverage of full obligations - averaging 1.4x for all participants in 2015.
UNCONDITIONAL PAYMENT OBLIGATIONS: Absolute and unconditional payment obligations in the take-or-pay PPAs require payments to be made by the participants regardless of project operations. The PPAs cover all project costs, including 110% of the bond fund requirement, and excess amounts are transferred to the revenue fund.
STEP-UP PROVISIONS: A 25% step-up provision in each participant's PPA is sufficient to cover a default by any single participant, which limits bondholder exposure.
RATING SENSITIVITIES
CHANGES IN PARTICIPANT CREDIT QUALITY: The Berkshire Wind Power Cooperative Corporation's rating will continue to reflect the credit quality of the participating municipal electric systems. Continued improvement in the operational and financial profiles of the participants could result in an upgrade. Conversely, a significant, sustained deterioration in credit quality could pressure the rating.
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 typically small, residential customer bases totaling nearly 110,000.
STRONG PARTICIPANT CREDIT FUNDAMENTALS
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 3.6% (July 2016).
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 averages 1.36x (2015).
The participants' retail rates are more competitive than the state average, which provides revenue-raising flexibility to manage the full and timely recapture of costs.
TYPICAL JOINT ACTION AGENCY MARGINS; STRONG RESERVES
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 500 days cash on hand lend considerable support.
Unrestricted cash, including approximately $1 million for a project parts reserve, totals $2.3 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 ($5.5 million).
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 with 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 through 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 through 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.
SUSTAINED ON-TARGET PROJECT PERFORMANCE
Improved asset performance has continued since 2013, and the project's performance remains on-target. The project capacity factor has averaged 38.3% since 2014, which is 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.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/site/re/750012
U.S. Public Power Rating Criteria (pub. 18 May 2015)
https://www.fitchratings.com/site/re/864007
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015068
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015068
Endorsement Policy
https://www.fitchratings.com/regulatory
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