NEW YORK--(BUSINESS WIRE)-- Fitch Ratings rates Midland Cogeneration Venture, LP's (MCV) $560 million senior secured notes 'BBB-'. The Rating Outlook is Stable.
Key Rating Drivers
--Cash flows are primarily contracted through power and steam sales agreements with investment grade offtakers. The power purchase agreement (PPA) earns capacity and energy payments and passes through most fuel, operating, maintenance and emission costs. The notes will mature at PPA expiration in 2025;
--Operational facility has historical PPA availability exceeding 98%, supported by excess capacity and redundant equipment. The O&M and capital expenditure budget is expected to sufficiently fulfill PPA requirements;
--Supply risk is mitigated through March 2015 by fulfillment of PPA fuel security provision, and the expectation is that a similar fuel supply agreement will replace the current. Demineralized water requirements also expected to be met via a renegotiated contract or adequate alternative source;
--The financial coverage cushion as demonstrated by a rating case average debt service coverage ratio (DSCR) of 1.40 times (x) and minimum of 1.37x, is consistent with an investment grade rating.
What Could Trigger a Rating Action?
--Weak operating performance;
--Increased property taxes;
--Downgrade of a counterparty.
Security
Collateral will include a first lien security interest for the benefit of the note holders, over 100% of the assets of the issuer (MCV); 100% of the sponsors' existing and future equity interests in the issuer; all material project documents and agreements; the funds of collateral accounts and all permitted investments; all insurance and reinsurance and condemnation awards; and all revenues.
Transaction Summary
MCV is issuing $560 million of senior secured notes through a Rule 144A Offering. Proceeds from the issuance will be used to repay the outstanding balance of an existing credit facility (from the asset's 2009 financing), pay interest rate hedge termination fees and transaction expenses, to repay an unsecured loan, and provide a dividend payment to the sponsors.
Revenue price and volume risk is significantly mitigated by the PPA with Consumers Energy Company (Consumers, 'BBB-'; Stable Outlook) and the steam and electric power agreement (SEPA) with Dow Chemical Company (Dow, 'BBB'; Stable Outlook). Contracted revenues comprise in excess of 90% of total revenues through maturity. MCV can sell ancillary services and energy not under contract into the merchant market. PPA performance thresholds to prevent termination by Consumers are not severe, have been readily met historically, and are expected to exceed minimum requirements through the term of the PPA. A downgrade of the credit rating for Consumers or Dow is likely to lead to negative rating action on the senior notes.
MCV is ring-fenced and structured as a bankruptcy remote special-purpose entity.
MCV was formed in 1990 as a limited partnership to convert a portion of an uncompleted nuclear power plant owned by Consumers into a 1,600 MW natural gas-fired, combined cycle, cogeneration facility. Total capacity available is significantly higher than the 1,240 MW required for the PPA. MCV installed six package boilers in 2009 to improve operating flexibility, and an integrated spare steam turbine generator and two spare gas turbine rotors further assist the facility in maintaining high PPA availability and operating stability.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);
--'Rating Criteria for Thermal Power Projects' (June 20, 2011).
Applicable Criteria and Related Research: Midland Cogeneration Venture, LP
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=650723
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832
Rating Criteria for Thermal Power Projects
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=639073
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Fitch Ratings
Primary Analyst:Andrew Joynt, +1-212-908-0842
Associate Director
Fitch, Inc.
One State Street Plaza
New York, NY 10002
or
Secondary Analyst:Gregory Remec, +1-312-606-2339
Senior Director
or
Committee Chairperson:Timothy Ononiwu, +1-212-908-0879
Senior Director
or
Media Relations:Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
Source: Fitch Ratings
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