Fitch Affirms Coso Geothermal Power Holdings LLC's 2007 Pass-Through Trust Certificates at 'C'

NEW YORK--()--Fitch Ratings has affirmed Coso Geothermal Power Holdings LLC's (Coso) $629 million ($398 million outstanding) pass through certificates due 2026 at 'C'.

RATING RATIONALE

The rating affirmation is based on Fitch's expectation that default appears imminent. Cash flow projections and remaining reserves indicate that a default is likely to occur on the Jan. 15, 2017 payment.

KEY RATING DRIVERS

Geothermal Resource Depletion: Supply Risk - Weaker:

Underperformance of the geothermal resource has lowered net operating capacity at the project's three interlinked geothermal power plants. With the decline in the geothermal resource, energy revenues have fallen to levels that are not sufficient to meet debt obligations.

Expected Payment Shortfalls: Debt Structure - Weaker:

Projections indicate that cash available for debt service will result in shortfalls for future payment obligations on the fully amortizing certificates. Approximately $1.7 million in liquidity remains under the senior debt service reserve, which Fitch expects to be exhausted on the January 2017 payment.

Limited Price Risk: Revenue Risk - Midrange:

Variable pricing on energy sales is limited to approximately 10% of total revenues through March 2019. Coso earns the majority of its revenue for its energy output through various power purchase agreements (PPA) with off-taker Southern California Edison (SCE, rated 'A-'/Outlook Stable by Fitch).

Lack of Dedicated Operating Reserves: Operation Risk - Weaker:

The project has no dedicated operations and maintenance or major maintenance reserve, leaving little cushion to protect against increased operational costs.

Peer Analysis

Coso's geothermal assets have suffered worse resource depletion than those within the CE Generation LLC ('BB-'/Outlook Stable) portfolio and OrCal Geothermal Inc. ('BB'/Outlook Negative), leading to more pressured financial performance.

RATING SENSITIVITIES

Negative - Fitch will downgrade the rating to 'D' if a payment default occurs in January 2017.

SUMMARY OF CREDIT

In Fitch's view, reserves are likely to be exhausted and a payment default is likely to occur in January 2017 due to weakened operational performance. As of November 2016, Coso has tapped its senior reserve five times over the past four years to meet debt payment shortfalls. Coso drew the senior debt reserve portion of its letter of credit into cash in November 2014 and continues to meet rated debt obligations using a combination of operating cash flow and the remaining reserves. Coso utilized approximately $3.7 million of the senior debt reserve to meet the July 2016 payment, leaving a reserve balance of $1.7 million.

The payment due Jan. 15, 2017 includes approximately $43 million of combined note interest, debt service reserve letter of credit interest, and note principal. The latest projections indicate that there will be approximately $20.8 million of operating cash flow available plus the remaining $1.7 million of reserves. The shortfall of approximately $20.5 million would constitute a payment default.

Coso Geothermal Power Holdings, LLC is a special-purpose company formed to lease and operate three interlinked geothermal power plants located in Inyo County, CA. Per the lease, cash flows from both the Coso plants and Beowawe, an affiliated geothermal project in Nevada, are available to service rent payments. Rent payments are the sole source of cash available to pay debt service on the pass-through trust certificates. Each tranche of the certificates represents an undivided interest in a related pass-through trust, which holds the lessor notes issued by the owner lessors. The notes are the sole collateral and source of repayment of the certificates.

Additional information is available on www.fitchratings.com

Applicable Criteria

Rating Criteria for Infrastructure and Project Finance (pub. 08 Jul 2016)

https://www.fitchratings.com/site/re/882594

Rating Criteria for Thermal Power Projects (pub. 28 Jun 2016)

https://www.fitchratings.com/site/re/883254

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015184

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015184

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Andrew Joynt
Director
+1-212-908-0594
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Christopher Joassin
Director
+1-312-368-3166
or
Committee Chairperson
Gregory Remec
Senior Director
+1-312-606-2339
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Andrew Joynt
Director
+1-212-908-0594
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Christopher Joassin
Director
+1-312-368-3166
or
Committee Chairperson
Gregory Remec
Senior Director
+1-312-606-2339
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com