Fitch Affirms Plains End Financing, LLC; Outlook Stable
NEW YORK -- May 16, 2013
Fitch Ratings has affirmed the 'BB' rating on Plains End Financing, LLC's
(Plains End) $117.7 million senior secured bonds (senior bonds), and 'B+'
rating on the $20.3 million subordinated secured notes (sub notes). The
affirmation and maintained Stable Outlook reflects the continued operating
stability and stabilization of operating costs at the current level.
KEY RATING DRIVERS
--Tolling-Style Contracted Revenues: The project benefits from stable and
predictable revenues under two 20-year fixed-price power purchase agreements
(PPAs) with a strong utility counterparty, Public Service Company of Colorado
(PSCo, rated `BBB+' with a Positive Outlook by Fitch). Under the tolling-style
agreements, the project receives substantial capacity payments that account
for 82% of consolidated revenues and pass through all variable fuel expenses
--Operational Stability Mitigates Cost Increases: The project was designed to
provide backup generation for nearby wind projects due to the intermittency of
wind resource. The project faces accelerated major maintenance when the
volatility in wind causes the project to be dispatched at a rate higher than
anticipated. Dispatch has decreased from the 2008 high; however, the project
is still susceptible to decreased cash flow from accelerated major
maintenance. This risk is partially mitigated by strong availability and a
stabilization of the cost profile including property taxes. A recent sale of
the projects is not expected to heighten operating risks.
--Refinance Risk Poses Threat: The 'B+' rating on the subordinate notes
reflects the potential for refinance risk in 2023 if the project is unable to
meet target amortization amounts. Under the Fitch rating case, which
demonstrates the effect of reduced cash flow to the subordinate tranche, there
is still sufficient cushion to repay the sub notes by 2023. If the project is
only able to meet the minimum amortization payments, however, there would be a
balloon in 2023 for the outstanding amount. The project is current on all
--Debt Service Profile Remains Consistent: Actual 2012 and budgeted 2013 DSCR
for both the senior and subordinated debt represent an increase from
historical performance, but fall in line with the current projections,
especially under Fitch's rating case which incorporates increased dispatch to
accelerate costs as well as a 5% increase to operating costs and a 10%
increase to major maintenance. Under this scenario, the average DSCR is 1.39x
with a minimum of 1.26x at the senior level and 1.11x and 1.03x at the sub
--Further cost savings improvement above the projected level could result in
--Sustained increased dispatch would accelerate major maintenance and
negatively impact cash flow.
Plains End's obligations are jointly and severally guaranteed by operating
plants Plains End LLC (PEI) and Plains End II LLC (PEII). The obligations of
the issuer and guarantors are secured by a first-priority perfected security
interest in favor of the collateral agent. The collateral includes all real
and personal property, all project documents and material agreements, all cash
and accounts, and all ownership interests in the issuer and guarantors. The
collateral will be applied first to the senior secured bonds and then to the
subordinated secured notes.
PEI and PEII were sold recently by Energy Investors Funds (EIF) to affiliates
of Tyr Energy, Inc. (Tyr), John Hancock Financial Services and Prudential
Capital Group. Tyr will act as the asset and commercial manager while NAES
Corporation (NAES) will remain as operator, supporting operational stability.
Both Tyr and NAES have the same parent company, ITOCHU Corporation,
demonstrating a further alignment of interests.
Operationally, the project has continued to maintain high availability with an
average of 99.5% across PEI and PEII in 2012. During 2012, there was decreased
dispatch at both of the projects, resulting in an overall capacity factor of
4.8% compared to budget of 9.7%. The decreased dispatch was related to a mild
winter in Colorado combined with increased usage of a utility-owned hydro
pumped storage facility for peak energy. Decreased dispatch is beneficial to
the project as the majority of revenues are derived from capacity payments,
while increased dispatch reduces cash flow through accelerated major
maintenance and increased operating expenses.
The project has historically faced challenges regarding increased property
taxes which had a material impact on the cash flow profile. Former owner EIF
appealed the property taxes paid and a resolution was reached, which helps to
stabilize projected property taxes going forward. Fitch notes that the
projects remain exposed to future changes in tax treatment.
Plains End is indirectly owned by Tyr Energy (50%), John Hancock (35%) and
Prudential (15%) following the May 2013 sale. Plains End was formed solely to
own and develop two gas-fired peaking projects, PEI and PEII, located in
Arvada, Jefferson County, Colorado. The plants are peaking facilities used
primarily as a back-up for wind generation, as well as other generation
sources, in Colorado with a combined capacity of 228.6 MW. Combined cash flows
from both plants service the obligations under the two bond issues.
PEI and PEII have long-term PPAs structured as tolling contracts with PSCo
that expire in 2028. Under the PPAs, PSCo has a right to all of the capacity,
energy and dispatch of the facilities. PEI and PEII receive capacity payments
and variable energy payments that generally reimburse their variable operating
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 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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Nicole Czarny, +1-212-908-0684
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Cynthia Howells, +1-212-908-0685
Gregory Remec, +1-312-606-2339
Elizabeth Fogerty, New York, +1 212-908-0526
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