Fitch Affirms Genesis Solar LLC's $852MM Total Trust Certificate and Bank
NEW YORK -- February 7, 2014
Fitch Ratings has taken the following rating actions on a total of $852
million of debt issued by Genesis Solar LLC (Genesis) as follows:
--$561.6 million 3.875% series A trust certificates (U.S. Sovereign
Guaranteed), due 2038 'AAA'; Negative Rating Watch maintained;
--$120 million floating-rate bank facility (U.S. Sovereign Guaranteed), due
2019 'AAA'; Negative Rating Watch maintained;
--$140.4 million 5.125% series B trust certificates (Non-Guaranteed), due 2038
affirmed at 'BBB+'; Outlook Stable;
--$30 million floating-rate bank facility (Non-Guaranteed), due 2019 affirmed
at 'BBB+'; Outlook Stable
KEY RATING DRIVERS
Robust Completion Agreement: Fitch views completion risk as low due to the
advanced construction stage and construction completion agreement (CCA)
between NextEra Energy Resources, LLC (guaranteed by NextEra Energy Capital
Holdings, Inc. rated 'A-' with a Stable Outlook) and the project. The CCA
effectively mitigates construction risks by requiring a full or partial buy
down of the project debt by the sponsor if project economics are compromised
by any lack of completion. (Completion Risk: Stronger)
Stable Cash Flow Stream: The rating is anchored by stable cash flow from a
strong, long-term, fixed price, power purchase agreement (PPA) with investment
grade utility, Pacific Gas & Electric Company (PG&E 'BBB+'/Stable). The PPA
extends for two years past the debt maturity and does not allow for economic
curtailment. The off-taker's rating, coupled with the resiliency of the
project cash flow to severe operational stresses, constrains the project
rating at the revenue counterparty's rating. (Revenue Risk- Price: Stronger)
Adequate Solar Resource: Fitch's rating case utilizes one-year P90 solar
resource estimates based on extensive onsite data correlated with long term
satellite data. Fitch has applied additional haircuts to account for solar
resource forecast bias, consistent with Fitch's solar criteria. The project is
able to cover debt service obligations at 1.97 times (x), on average, under a
one-year P99 generation scenario. (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)
Sufficient Liquidity and Structural Support: The guaranteed Series A
Certificates and Floating-Rate Bank Term Loan benefit from a guarantee from
the US Government rated 'AAA' with a Negative Watch. The project is also
backstopped by a parent guarantee for the expected $300 million U.S. Treasury
Cash Grant proceeds that reduce project debt in 2014. Debt structure includes
six months of debt service reserves, additional cash sweep to amortize bank
loan tranches in 3-years, and a substantial development and delivery term
security in the revenue contract for damages. (Debt Structure: Guaranteed-
Considerable Financial Coverage: The 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 consequently low leverage on the transaction. Fitch
rating case indicates an average debt service coverage ratio of 2.42x,
significantly above the level to achieve investment grade.
--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
--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 positively the Sponsor's management of a tight construction
schedule following several delay events. Construction of the Project is 99%
complete with a final completion date estimate in line with the original
schedule. Unit 2 reached COD on Nov. 30, 2013, consistent with the guaranteed
COD under the PPA. COD of this unit was delayed in part by a delay in
back-feed power transmission from the SCE Colorado River Substation. The
substation has been completed and was energized on Sept. 12, 2013.
Units 1 and 2 swapped expected COD following the uncovering of cultural
artifacts within the grading area of Unit 1. Unit 1 is on schedule to reach
COD by April 1, 2014, ahead of the guaranteed COD of Nov. 30, 2014. Unit 1 is
mechanically complete with only 1% of construction activities and three
commissioning milestones remaining. The IE has opined that there are no
activities on the critical path that would result in a permanent slip in the
Construction costs are $59.2 million over budget; however, this amount should
be funded under the CCA and therefore will not negatively impact the Project.
The cost overruns are largely due to the swap of the units in the construction
schedule, which resulted in higher planning and design costs as well as
additional piping and electrical installation costs. Proceeds from the $702
million project note and $150 million bank facility have been drawn in full as
of January and all future costs will be funded to the construction account
from equity under the CCA.
Fitch views the risk associated with the 2013 involuntary Chapter 7 bankruptcy
proceeding of the Project's mirror supplier, Flabeg US Solar, as substantially
mitigated. All of the mirrors have been delivered to the site and installed on
both units with roughly 3,000 spares in reserve to replace broken or defective
mirrors. At present, there are no ongoing lawsuits between the Project and
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
Department of Energy under the Financial Institution Partnership Program in
August 2011. The project is comprised of two, distinct 125 MW solar fields
(Unit 1 and Unit 2) which are being built in succession. The two units are
expected to be fully operational by April 2014.
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
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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Elizabeth Fogerty, +1-212-908-0526 (New York)
Press spacebar to pause and continue. Press esc to stop.