Fitch Affirms Astoria Power Project Trust's Series A, B, and C Certificates;
CHICAGO -- December 05, 2012
Fitch Ratings has affirmed the ratings for Astoria Power Project Pass-Through
Trust's series A, B, and C certificates as follows:
--$515 million series A certificates due 2016 at 'BBB-';
--$210 million series B certificates due 2021 at 'BB';
--$69.5 million series C certificates due 2021 at 'BB-'.
The Rating Outlook is Stable for each series.
Astoria Power Project Pass-through Trust was formed to issue the certificates.
The proceeds were used to purchase the rights, titles, and interests of
Astoria's lender in Astoria Energy LLC's (the project) first and second lien
loans and corresponding collateral. Each of the certificates represents a
fractional interest in the trust.
KEY RATING DRIVERS:
--Contracted Price Floor: The power purchase agreement (PPA) with an
investment-grade off-taker provides for a capacity and energy price floor that
supports the payment of scheduled debt service. Fitch expects the project to
rely on the capacity and energy price floor for the next two to four years.
The price floor reduces revenue risk, but cash flow remains subject to the
risk of operational shortfalls or increased costs, potentially exacerbated by
an unfunded operating reserve.
--Manageable Refinance Risk: Astoria's debt structure provides financial
flexibility by enabling the project to defer first lien target amortization
and pay second lien debt service in-kind. Fitch believes that average New York
Independent System Operator's (NYISO) Zone J capacity and energy prices will
generally remain below the PPA price floor requiring the project to refinance
approximately $75 million of the target amortization portion of the first lien
loan. Additionally, the off-taker's decision to not extend the PPA through the
maturity of the second lien loan creates revenue uncertainty that increases
--Strong Competitive Position: Astoria has a strong competitive position in
the NYISO Zone J, historically among the most capacity constrained markets in
the U.S. This helps mitigate dispatch risk and enhances capacity and energy
price prospects during the merchant period.
--Solid Cost Profile: Management has effectively managed costs and realized
approximately $7 million in shared cost-savings with Astoria II. The PPA does
not pass-through operating or emissions costs, and energy purchases are
subject to an implied heat rate factor, increasing the importance of
operational stability and efficiency.
--Adequate Projected Coverage Ratios: The Fitch rating case forecasts
scheduled series A, B, and C debt service coverage ratios (DSCRs) of
approximately 1.45x, 1.15x, and 1.05x (respectively) through the PPA period.
The Fitch base case forecasts a similar DSCR profile due to forecasted
depressed market capacity and energy prices that lead to the payment of PPA
floor prices over the next two to four years. Fitch expects more robust
coverage in the Fitch base and rating cases thereafter from a forecasted
recovery in market prices, an assumed long-term refinancing of any outstanding
first lien balance and manageable leverage of $525 per kW or 2.5x net
debt-to-CFADS at the commencement of the merchant period.
WHAT COULD TRIGGER A RATING ACTION
--Operational Challenges: Decreased project availability, persistent heat rate
excursions, or an inability to effectively manage operating costs;
--Depressed Market Prices: Sustained weakness in the capacity and energy
Astoria Depositor Corp. deposited with the trust a first and second lien loan
executed by Astoria Energy LLC. The loans are secured by a first or second
priority mortgage lien on the real estate, security interest in all of
Astoria's personal property, including the PPA and other contracts, and a
pledge of all accounts and the membership interests of Astoria Project
Partners LLC in the project.
Fitch views the credit quality of the series A certificates and series B
certificates to be closely aligned to the credit quality of the first and
second lien loans, respectively. Fitch considers the series C certificates to
be structurally subordinated to the series A and B certificates given their
position in the waterfall and lower priority in the event of foreclosure.
Additionally, Fitch notes that the lien priorities will remain intact until
full cash payment of the first lien principal and interest. This includes the
commencement of a new first lien credit agreement.
Fitch believes the project will receive capacity and energy prices consistent
with the contracted price floor for the next two to four years due to
continued market pricing weakness. While energy prices have primarily been
driven by low natural gas prices and demand, NYISO Zone J capacity prices have
declined considerably by the entry of uneconomic capacity. However, Fitch
views the FERC ruling on the NYISO application of the buyer-side market power
rules for Astoria II and Bayonne as favorable to market capacity prices in the
long-term. Nevertheless, uncertain future load demand and a response by
mothballed capacity may act as a capacity price suppressant. Fitch expects the
price floor to continue supporting scheduled debt service and near-term
financial flexibility to remain constrained, but any capacity and energy
margin improvements should help reduce refinance risk.
Fitch recognizes that the structural features of the debt allow for market
pricing improvements to benefit the debt holders, as the project may not make
equity distributions until all targeted payments are met and debt service
reserves are fully funded. Fitch notes that the project's reserves were drawn
on during the first half of 2012 due to timing issues, but have been or are in
the process of being replenished. Fitch believes that the floor pricing
structure and projected price recovery, in conjunction with the structural
features of the debt, reduce the probability of default and help mitigate the
projected refinance risk.
Astoria is an approximate 550MW gas- and USLD-fired power plant in the Astoria
section of Queens, New York. The facility provides electric generating
capacity for NYISO's Zone J, which consists of the New York City market.
Astoria sells the majority of its capacity and energy to Consolidated Edison
(ConEd; Fitch rated 'BBB+' with a Stable Outlook) under a PPA for an initial
term of 10-years, expiring May 2016. Fitch notes that ConEd decided not to
extend the PPA for an additional five-year period through May 2021. The rate
structure for the capacity and energy components is priced at a 5% discount
from the then-current market price, which is subject to a floor capacity and
energy price, and a capacity ceiling price.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);
--'Rating Criteria for Thermal Power Projects' (June 18, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Thermal Power Projects
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Dino Kritikos, +1-312-368-3150
70 West Madison Street
Chicago, IL 60602
Cynthia Howells, +1-212-908-0685
Greg Remec, +1-312-606-2339
Elizabeth Fogerty, New York, +1 212-908-0526
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