Fitch Affirms Genesis Solar LLC's $852MM Total Trust Ctf and Bank Facilities Ratings
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings on a total of $852 million of debt issued by Genesis Solar LLC (Opco, Genesis):
--$441.58 million 3.875% series A trust certificates (U.S. Sovereign Guaranteed), due 2038 at 'AAA'; Outlook Stable;
--$94.4 million floating-rate bank facility (U.S. Sovereign Guaranteed), due 2019 at 'AAA'; Outlook Stable;
--$110.395 million 5.125% series B trust certificates (Non-Guaranteed), due 2038 at 'BBB+'; Outlook Stable;
--$23.6 million floating-rate bank facility (Non-Guaranteed), due 2019 at 'BBB+'; Outlook Stable.
The affirmation of Genesis Solar, LLC is based on the neutral credit impact of additional subordinated debt issued at Genesis Solar Funding, LLC (Holdco). Despite a downward revision to the solar assessment and an increase to operating cost assumptions in project projections, the debt service coverage profile at Opco remains consistent with the current rating. The Rating Outlook is Stable based on timely achievement of the commercial operation date (COD) and early results generally consistent with expectations.
KEY RATING DRIVERS
--Stable Revenue Stream: The rating is anchored by stable revenues from a strong, long-term, fixed-price, power purchase agreement (PPA) with an investment grade utility, Pacific Gas & Electric Company (PG&E rated 'BBB+' with a Stable Outlook by Fitch). The PPA extends 13 months past the Opco debt maturity and does not allow for economic curtailment. (Revenue Risk- Price: Stronger)
--Adequate Solar Resource: Fitch's rating case uses one-year P90 solar resource estimates based on 13 months of ground-based data correlated with long-term satellite data. The revised resource assessment accounts for long-term uncertainty; however, Fitch has applied an additional 2% haircut to generation to account for reduced output or availability. In accordance with Fitch's criteria for investment grade solar projects, Opco debt service coverage ratios (DSCR) average 1.98x under a one-year P99 generation scenario, demonstrating strong resilience to low solar resources. (Revenue Risk- Volume: Midrange)
--Unproven Cost Profile: Genesis has yet to establish a stable cost profile due to lack of operating history. The Project utilizes solar parabolic trough technology, largely similar to the Solar Energy Generating Systems (SEGS) technology, with which the sponsor has over 20 years of operating experience. The sponsor's familiarity with this technology helps to reduce operating risk and cost uncertainty. Further, Fitch has stressed operating costs at 10% in the rating case. (Operation Risk: Midrange)
--DOE Guarantee for 80% of the Issued Debt: The guaranteed series A certificates and floating-rate bank term loan benefit from a guarantee from the U.S. Government (rated 'AAA' with a Stable Outlook). The ratings reflect the certainty of timely debt service payments provided by a loan guarantee from the U.S. Department of Energy (DOE) for 100% of principal and interest on those guaranteed portions of the debt. (Debt Structure [Opco Guaranteed tranches]: Stronger)
--Sufficient Liquidity and Structural Support: The Opco debt structure includes six months of debt service reserves (DSR) and additional cash sweep to amortize the bank loan tranches in three years. The remaining features are considered typical at the Opco level. (Debt Structure: [Opco Non-Guaranteed]: Midrange)
--Investment Grade Financial Coverage: Under Fitch's base case, which incorporates P50 generation, 2% generation reduction, floating interest rate stress and inflation of 1.50%, Opco DSCRs average 2.84x with a minimum of 2.22x. Under Fitch's rating case which incorporates P90 generation and increased costs, Opco DSCRs average 2.42x with a minimum of 1.94x.
--Comparable to Peers: The Opco rating is supported by a sizable financial cushion in debt service coverage built into the financial structure. The increased level of coverage compared to peers is due to a high level of contributed equity and relatively low leverage on the transaction.
--A rating downgrade of the U.S. sovereign rating, based on loan guarantees for 80% of the rated debt, would result in a commensurate downgrade of the project rating.
--Any rating downgrades of the parent, NextEra Energy Capital Holdings, Inc., based on construction guarantees, or the PPA provider, PGE, based on revenue contract reliability below the project rating would result in a commensurate downgrade of Genesis.
--Energy output or solar resource persistently below one-year P90 projections could result in a negative rating action.
--An increase to operating costs that exceeds 10% of the original projections could result in a downgrade, especially under a low production scenario.
Collateral for the debt includes all of the ownership interests in Genesis and a first priority security interest in all of the project assets and accounts.
Fitch views the issuance of subordinate Holdco debt as credit neutral for the Opco rating due to the ring-fenced and bankruptcy remote features of the rated debt. Fitch has confirmed that the presence of Holdco debt will not negatively impact cash flows available to service Opco debt service and as such, the Holdco debt issuance has no rating impact on the existing debt.
As part of the Holdco debt issuance, updated solar resource assessments and operation and maintenance (O&M) forecasts were provided which impact cash flow available to service Opco debt. While P50 solar generation estimates have decreased by roughly 4% over the life of the debt with a 7% increase to O&M over the same period, the overall profile remains in line with the current rating. Fitch has tempered rating case stresses to incorporate uncertainty revisions to the solar resource forecast as well as a revised curtailment stress due to an updated transmission assessment. The revised rating case results in coverage roughly in line with original expectations and consistent with the Opco rating.
The Project reached COD under both PPAs in March 2014, following a unit swap which placed Unit 2 in service during November 2013 and Unit 1 in service in March. During December 2013, Unit 2 (the first unit to achieve COD) experienced turbine vibration issues that resulted in a January outage to complete warranty work with Siemens. Unit 2 was restored and preventative work was also performed on Unit 1 during the construction period. February and March availability was near 100% with cumulative generation for the two months near revised P50 estimates. The high availability levels of the Genesis project are consistent with operating data available from the SEGS plants which have been maintained at 99% availability since 2005.
Pursuant to the construction completion agreement with NextEra Energy Capital Holdings and following the declaration of COD under the agreement on June 25, NextEra funded the mandatory prepayment of the debt, eliminating the risk of cash grant repayment to the project. Upon full redemption of the debt based on completion achieved at both units, a total of $337 million will have been allocated between the project notes and bank loans while NextEra awaits the receipt of the cash grant proceeds, expected by Q3'14. During 2014 , NextEra also funded the required shortfall of grant proceeds due to sequestration under the agreement.
Genesis is a total 250 MW parabolic trough solar project located in the Sonoran Desert, California. The project received debt guarantees from the U.S. DOE under the Financial Institution Partnership Program in August 2011. The project consists of two, distinct 125 MW solar fields (Unit 1 and Unit 2) which were built in succession.
The project is owned and operated by NextEra Energy Resources LLC, an indirect subsidiary of NextEra Energy, Inc. The equity and completion obligations are provided by NextEra Energy Capital Holdings, Inc., under a parent guarantee to NextEra Energy Resources. The project is structured as a special purpose vehicle that is bankruptcy remote from NextEra Energy Resources.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);
--'Rating Criteria for Solar Power Projects' (Feb. 21, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Solar Power Projects - Effective Feb. 23, 2012 to Feb. 21, 2013