Fitch Affirms Mission Economic Development Corp. (Dallas Clean Energy
McCommas Bluff) at 'BBB-'
NEW YORK -- February 1, 2013
Fitch Ratings has affirmed the ratings of Mission Economic Development
Corporation's ('Dallas Clean Energy McCommas Bluff, LLC' or 'DCEMB') $40.2
million aggregate series 2011 revenue bonds due 2024 at 'BBB-'. The Rating
Outlook is Stable.
--Strong Revenue Agreement: The project benefits from a long term, fixed-price
gas sale agreement (GSA) with Shell Energy North America that provides revenue
stability through the life of the contract. The GSA was amended in 2012 to
increase the amount of gas purchased by Shell which reduces exposure to excess
gas sales at market prices. The possible nine-month tail on the Shell contract
is mitigated by a fully funded twelve-month debt service reserve sized at
--Resource Risk: The project is highly dependent on the accuracy of the
landfill gas (LFG) recovery forecast. The LFG recovery estimates have been
revised downwards twice since the original projection due to drought and
reduced collection efficiency at the project site. The result is LFG
collection efficiency reduction of 15% over the life of the debt.
--Uncertain Cost Profile: The project has yet to establish a history of stable
operating costs under revised projections provided by Clean Energy as the
operator. 2012 operating costs have fallen in line with these projections;
however, the expansion phase will not be completed until February 2013, and so
the true cost profile may differ from actual experience.
--Adequate Financial Profile: The revision to the resource assessment is
offset by the increased gas sale commitments under the GSA. Debt service
coverage ratios (DSCR) remain consistent with the current rating with over 2.0
times (x) coverage in 2011 and 2012 per Fitch's calculation. Under Fitch's
rating case, which incorporates stresses to availability, operating costs and
resource availability, average DSCR is 1.82x with a minimum of 1.36x.
What Could Trigger a Rating Action
--A material change to actual LFG recovery compared to forecast;
--Decreased availability of the Project below historical levels;
--A change to the cost profile that significantly impacts cash flow.
The security package consists of a first priority lien on the assets of the
project company including the lease with the City of Dallas, sponsor's
ownership interest in the project company, all project contracts including the
lease, rights, construction agreements, the GSA and the Gas Transportation
Agreements. The collateral does not include the landfill site.
Fitch believes construction risk is minimal despite a substantial delay in
completion. The estimated completion date has been revised to Feb. 28, 2012.
All of the equipment for the expansion in on-site and installed, reducing the
risk of cost overruns. The project is owed liquidated damages (LDs) pursuant
to the contract for late completion. However, the project is not reliant on
these LDs to meet final completion or scheduled debt service payments.
Following a reduction to the LFG curve in 2011, the sponsor has further
lowered the collection system coverage percentage (a measurement of collection
efficiency). The reduction was due to a timing issue with the sequence of
landfilling the garbage and the efficiency of how well installation was
proceeding. Overall collection efficiency was reduced to a cap of 80% from 95%
over the project life as originally estimated.
Offsetting this collection reduction is an increase to the production caps
purchased by Shell under the GSA as amended in March 2012. The new schedule
increases the amount of natural gas to be purchased by Shell through 2034
assuming the lease with the City of Dallas is extended. Additionally, due to
the improvements at the facility being more effective than anticipated, actual
inlet capacity will be increased to 15.5 million standard cubic feet per day
(scfd) compared to the 14.8 million scfd assumed for previous ratings.
The project has covered debt payments at more than 2.0x for 2011 and 2012
while fully funding the debt service reserve at $4.75 million and O&M reserve
at $1.3 million. The project has maintained availability of 90% for 2012 with
most down time related to the expansion project. In addition, the project has
met operating expenses as budgeted last year apart from sulfur removal
expenses which have increased compared to the prior year budget. As a response
to this increase, the sponsor budgeted for an additional $1 million in
equipment to extend the life of the sulfur removal media which would extend
the replacement cycle from three months to two years. This is expected to
reduce the sulfur removal costs to original projections. The expense has
already been paid out of the construction budget.
DCEMB is a 15.5 million scfd landfill gas project that converts landfill gas
into pipeline quality gas. The landfill is owned and operated by the City of
Dallas and covers 2,025 acres in Southeast Dallas, of which 1,029 acres are
designated for buffer, roads and utilities and 996 acres are designated for
waste disposal. Originally permitted in 1980, the landfill takes in MSW and
construction and demolition waste from Dallas, Fort Worth and the surrounding
areas. It is the 11th largest landfill in the U.S. from a total of
approximately 6,000 per Environmental Protection Agency estimates.
DCEMB is largely (70%) controlled by Clean Energy Fuels, a small-cap publicly
traded company. The project was originally conceived, entered into a lease
with the City of Dallas in 1994 and commenced operations in 1999. The lease
and gas plant developed by the original leaseholder have passed through hands
of various leaseholders.
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 Thermal Power Projects' (June 18, 2012);
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Thermal Power Projects
Rating Criteria for Infrastructure and Project Finance
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