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Industry Report Card:
Project Finance Continues Its Growth Around The World

Primary Credit Analyst: Anne C Selting, San Francisco (1) 415-371-5009; anne.selting@standardandpoors.com Secondary Contact: Jayne M Ross, New York (1) 212-438-7857; jayne.ross@standardandpoors.com Research Contributor: Stephen Coscia, New York (1) 212-438-3183; stephen.coscia@standardandpoors.com
Table Of Contents
Industry Credit Outlook Significant New Issuance In U.S. Year To Date, But Credit Market Conditions Could Cause A Slow-Down In Second Half New Finance Structures Set To Spur A Revival Of Debt Issuance In EMEA Transit Projects Are Gaining Steam In The Canadian PPP Market Growing Opportunities Across Asia-Pacific Latin American Infrastructure Credit Quality Remains Healthy Issuer Review Contact Information Related Criteria And Research
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Industry Report Card:
Project Finance Continues Its Growth Around The World

Industry Credit Outlook
Since our last global report card, there has been continued new rating activity for project finance transactions around the globe. Driving the growth is the inability to further delay key infrastructure projects, low interest rates, refinancing needs for those projects facing maturing debt, and government programs that are encouraging infrastructure investment. Although growth came from all sectors of project finance, there was modestly more activity in in the infrastructure and transportation segment--especially public-private partnerships (PPP) projects. We also saw a noticeable increase in the financing of renewable energy projects. Most project finance transactions still originate in North America and Europe, but project financings in Latin America have increased and are showing signs of building on that growth. As of May 31, 2013, the overall general characteristics of our rated project portfolio remained fairly static. The power industry still represents the largest sector with about 40% of the rated portfolio of project finance transactions; public finance initiatives and real estate, and transportation sectors come next, with each representing 21% of the total portfolio.
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Industry Report Card: Project Finance Continues Its Growth Around The World
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(Note: Unlike most report cards published by Standard & Poor's Ratings Services, our project finance report cards do not contain economic outlooks for the sector. Project financing is a structure, utilized over a number of industries, including power, oil and gas, public finance initiatives and real estate, transportation, leisure and gaming, and natural resources. For our sector outlooks, go to Ratings Direct and access our sector reports by industry. For example, our most recent outlook for merchant power is "Industry Economic And Ratings Outlook: Outlook For U.S. Merchant Power And Independent Power Producers Continues To Be Unfavorable", March 4, 2013.)
Significant New Issuance In U.S. Year To Date, But Credit Market Conditions Could Cause A Slow-Down In Second Half
In the U.S., there had been a surge of new rating activity from December 2012 through early summer. However, July brought an abrupt halt to record levels of debt issuance because of interest rate increases and widening risk premiums. It remains to be seen if this is a temporary summer lull or a more pronounced second half slowing. The most notable development is that the U.S. market continues to embrace PPP projects. After years of lagging behind other global markets, support for the PPP model is growing. In early 2013, we assigned a 'BBB' issue rating to
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WVB East End Partners (Ohio River Bridges), a large transportation infrastructure project. We also saw a modest uptick in new solar energy ratings. We assigned a preliminary 'BBB-' issue rating to Solar Star Funding LLC's $700 million senior secured notes for construction on what is expected to be a $2.7 billion project. We also assigned a 'BBB' issue rating to Topaz Solar Farms LLC's $250 million series B senior secured notes and upgraded to 'BBB' the existing $850 million series A senior secured notes that it's using to build the estimated $2.4 billion California solar farm. Conventional power projects continue to be flat given healthy reserve margins throughout most of the U.S., but refinancings of existing debt have occurred to take advantage of record-low interest rates. With respect to credit quality, the number of downgrades (six) in the total U.S. rated portfolio outnumbered the upgrades (three) by a 2-to-1 margin. Outlook changes were fairly evenly split, with one entity moving to stable from negative and another moving to stable from positive and one going to negative from CreditWatch negative while another went to CreditWatch developing from CreditWatch negative. However, the overall U.S. portfolio has remained relatively constant, with about 60% of project finance transactions having stable outlooks. Ratings remain mostly in the 'BBB' and 'BB' categories, accounting for about 74% of the sector's ratings. The 'B' category ratings account for about 18% and the remainder are fairly evenly split between the 'A' and 'CCC' categories. Because the U.S. portfolio continues to be a mix of merchant exposed and full contracted power projects and the more stable credit profiles such as availability road projects or social infrastructure projects are, as yet, just beginning to emerge in the U.S., credit quality is on average lower than the rest of the globe. This results in more than 52% of the U.S. project finance ratings in the 'BB+' or below categories as compared with only 30% globally. The key issue facing U.S. project finance transactions is commodity costs. U.S. power projects are simultaneously seeing low natural gas prices, and low electric energy and capacity prices. The resulting lower margins are pressuring credit measures at a number of the power projects rated in the region.
Table 1
U.S. Rating Changes Dec. 6, 2012 To May 31, 2013

Issuer Brooklyn Navy Yard Cogeneration Partners L.P. Cedar Brakes I LLC Choctaw Generation L.P. To CCC/Watch Dev From B/Watch Neg Date Dec. 6, 2012 Dec. 13, 2012 Dec. 14, 2012 Feb. 28, 2013 Reason Liquidity concerns following forced outage due to Hurricane Sandy. Linked to counterparties, Exelon Corp. and Public Service Electric & Gas Co. Project reached forebeatance agreement with lenders. We expect lower debt service coverage over the life of the bonds due to low power prices, buildup of capacity in the energy market, and a lack of any power price hedge at the project. Low power prices have led to low debt service coverag,e which we expect to remain until debt maturity. Declining cash flows since opening in 2009 due to the recession, poor on-field performance, and competition in the New York market. An operational outage is affecting capacity and variable O&M payments for the next two years. We expect coverage to decline and remain low.
BBB/Stable D/-
BBB-/Stable CC/Negative BBB/Negative
Confederated Tribes of the BBB-/Negative Warm Springs Reservation
LS Power Funding Corp. Queens Ballpark Co. LLC
BBB-/Stable BB/Negative
BBB/Negative BB+/Negative
Dec. 14, 2012 Dec. 21, 2012 May 15, 2013
Red Oak Power LLC
B+/Negative
BB-/Watch Neg
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Table 1
U.S. Rating Changes Dec. 6, 2012 To May 31, 2013 (cont.)

Topaz Solar Farms LLC Utility Contract Funding LLC BBB/Stable BBB+/Stable BBB-/Stable BBB/Positive April 8, 2013 Second tranche of debt was lower than expected, improving our base case forecast.
April 25, Linked to counterparty Public Service Electric & Gas Co. 2013
New Finance Structures Set To Spur A Revival Of Debt Issuance In EMEA

For Europe, the Middle East, and Africa (EMEA) there has been limited issuance of project finance capital market debt, with the vast majority of infrastructure funding requirements being met by bank lending. This is primarily due to the failure of the monoline guarantee business model several years ago. The monoline insurers were relied on to provide a strong investment-grade guarantee to bonds issued by projects. Absent a guarantee from a highly rated monoline guarantor, the low underlying investment-grade rating for most currently rated projects was not deemed sufficiently creditworthy to entice new investors in EMEA. Investors typically require a project to have an 'A' category rating before they will invest. Debt issuance has begun to start flowing again this year, thanks to a number of alternative financing structures--established to assist projects in achieving strong investment-grade ratings--at last gaining momentum. Also, monoline guaranteed debt is also slowly beginning to return to the industry. A turning point came in March 2013, when UPP Bond 1 Issuer PLC issued debt to refinance the construction funding for its student accommodation projects at six U.K. universities. In addition, in February 2013, High Speed Rail Finance 1 PLC issued debt to refinance the acquisition funding used to purchase the high-speed rail link of the same name between London and Dover. We currently rate both transactions 'A-/Stable'. The introduction of the U.K. Government Guarantee Scheme and the U.K. Treasury proposed Private Finance 2 (PF2) initiative has started to be implemented for transactions currently in procurement. We understand that the U.K. Government's guarantee may be applied in a number of different ways. It could provide a full guarantee of the debt, a guarantee of the public sector counterparties' unitary charge obligations, a guarantee during the construction period only, or any combination of these depending on each project's individual requirements. A number of other plans and proposals are in development, including monoline insurer-wrapped debt and bank guarantees against construction risk. These proposals should spark a gradual increase in the capital market issuance of project finance debt through the rest of 2013. The U.K. Treasury also seems to be making progress in implementing the proposals outlined in its PF2 report, published in late 2012. In particular, we understand that funding competitions and higher levels of mezzanine and/or junior debt are being proposed in projects currently in procurement. While these developments may result in stronger ratings on project companies during the operating period, risks related to construction and counterparty credit may limit the ability of some to achieve an 'A-' rating during construction, without further credit enhancement. Outside of the U.K., the main impetus of capital market project finance issuance remains the European Investment Bank (EIB) project bond initiative. While work continues on previously announced pilot projects, the weakened credit
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quality of some public sector counterparties and stresses on sovereign ratings have stymied project development in some jurisdictions. In view of the EIB mandate and EU funding, we remain confident that the first projects supported by the project bond initiative will reach financial close during 2013. Even those projects in jurisdictions that have more recently joined the euro and aren't backed by the EIB initiative should still, in our view, benefit from the increase in new debt issuance. In particular, transactions with relatively short-term bank funding, which may need to be refinanced, may likely be able to take advantage of the newly revived appetite for issuing project finance debt. In the Middle East's Persian Gulf region, falling yields and large-scale refinancing requirements are likely to fuel growing capital market issuance. We particularly see this as affecting big-ticket, energy-related transactions that require considerable funding, which the domestic bank market is unable to provide. We expect to see the same trends in the Israeli local currency capital markets. In EMEA, about 80% of the projects were investment grade as of March 31, 2013, compared with 76% as of Sept. 30, 2012. About 78% of the projects, as reflected by their SPURs as of March 31, 2013, were investment-grade, up from 73% as of Sept. 30, 2012, indicating the improved credit quality of the rated portfolio in EMEA. In terms of ratings' outlook distribution, 7% of the portfolio had negative outlooks as of March 31, 2013, compared with 73% of the portfolio with stable outlooks. This compares favorably with the outlook distribution as of the end of September 2012, when 20% of projects had a negative outlook and only 60% had a stable outlook. We had positive outlooks on 11 issues at the end of the first quarter of 2013, down from 14 issuers at the end of September 2012, reflecting in part the number of upgrades during the six month period. Also, considerably fewer SPURs now have a negative outlook. Nine issues (less than 10%) had a negative outlook on March 31, 2013, compared with 21 issues (about 25%) as of Sept. 30, 2012. At the same time, 68 issues (70%) retained a stable outlook at the end of March, compared with 46 issues (53%) at the end of September 2012.
Table 2
Ratings Activity In The EMEA Project Finance Industry Oct. 1, 2012 To March 31, 2013
Issuer Abengoa S.A. Ajman Sewerage (Private) Co. Ltd. To B+/Watch Neg BB/Positive From B+/Stable BB/Stable Date Dec. 27, 2012 Nov. 19, 2012 Dec. 20, 2012 Oct. 26, 2012 Dec. 12, 2012 Dec. 21, 2012 Nov. 23, 2012 Nov. 12, 2012 Jan. 11, 2013 Reason Deteriorating financial results in two consecutive quarters. Ajman Sewerage's completion of enhancements under the Treatment Plant Enhancement Works. Weak financial profile during repair period. Improved operations. Reduced occupancy levels. Transferred and rated under project finance criteria. Construction completion and improved operations. Construction completion. Major maintenance forecasts show more expenditure then expected.
Autolink Concessionaires (M6) PLC Catalyst Healthcare (Manchester) Financing PLC Catalyst Higher Education (Sheffield) PLC Channel Link Enterprises Finance PLC Consort Healthcare (Birmingham) Funding PLC Consort Healthcare (Salford) PLC CountyRoute (A130) PLC
BBB-/Stable BB+/Positive BBB/Negative BBB/Stable BBB-/Stable BBB+/Stable BB-/Watch Neg
BBB/Negative BB+/Stable BBB/Stable N/A BBB-/Negative BBB/Positive BB-/Stable
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Table 2
Ratings Activity In The EMEA Project Finance Industry Oct. 1, 2012 To March 31, 2013 (cont.)
County Route (A130) PLC (Secured mezannine) CRC Breeze Finance SA (Class A notes) CRC Breeze Finance SA (Class B notes) CRC Breeze Finance SA (Class A notes) CRC Breeze Finance SA (Class B notes) Healthcare Support (Newcastle) Finance PLC High Speed Rail Finance 1 PLC InspirED Education (South Lanarkshire) PLC Northland Resources A.B. Northland Resources A.B. Northland Resources A.B. Northland Resources A.B. Njord Gas Infrastructure AS B-/Watch Neg B-/Stable C/Stable B/Stable C/Stable B-/Stable B-/Negative C/Negative B+/Negative C/Negative Jan. 11, 2013 Dec. 5, 2012 Dec. 5, 2012 Dec. 5, 2012 Dec. 5, 2012 March 25, 2013 Feb. 14, 2013 Nov. 29, 2012 Jan. 28, 2013 Feb. 6, 2013 Feb. 12, 2013 March 7, 2013 Jan. 21, 2013 Feb. 1, 2013 Dec. 6, 2012 Feb. 26, 2013 Jan. 21, 2013 Dec. 13, 2012 Jan. 30, 2013 Jan. 30, 2013 Dec. 7, 2012 March 5, 2013 Major maintenance forecasts show more spending than expected. Insolvency risk because increasing negative equity is no longer a material concern. Insolvency risk because increasing negative equity is no longer a material concern. Limited operational improvement. Insolvency risk because Breeze Three's increasing negative equity is no longer a material concern. Weakening relationship between the trust and the project company. New rating. Good operational performance. Lowered on funding shortfall. Continuing funding shortfall. Project applied for reconstruction. Project missed the March 6, 2013, interest payment on its debt. Announcement by the Norwegian Ministry of Petroleum & Energy regarding new tariffs. Conclusion of negotiations with key project parties, which exposes the project to traffic risk. Minimum debt-service coverage ratio lower than previous base case. Traffic underperformance. Announcement by the Norwegian Ministry of Petroleum & Energy regarding new tariffs. Sutton Bridge Power sale announcement. The upgrade before withdrawal reflected financial support from EBF Energy to Sutton Bridge. Issuer's request. Strong operating performance. New rating.
BBB-/Watch Neg A-/Stable BBB-/Stable CCC+/Watch Dev CCC/Watch Neg C/Watch Neg D (Default) A-/Watch Neg
BBB-/Stable N/A BB+/Positive B-/Stable CCC+/Watch Dev. CCC/Watch Neg C/Watch Neg A-/Negative
Ostregion Investmentgesellschaft Nr. 1 S.A. Peterborough (Progress Health) PLC Road Management Consolidated PLC Solveig Gas Norway AS
B+/Negative
B+/Watch Neg
BBB-/Stable B/Stable A-/Watch Neg
BBB-/Positive B+/Negative A-/Stable
Sutton Bridge Financing Ltd. Sutton Bridge Financing Ltd.
BBB-/Watch Pos A/Negative
BBB-/Negative BBB-/Watch Pos
Sutton Bridge Financing Ltd. Transform Schools (North Lanarkshire) Funding PLC UPP Bond 1 Issuer PLC
Not rated BBB/Stable A-/Stable
A/Negative BBB-/Positive N/A
EMEA--Europe, the Middle East, and Africa. N/A--Not applicable. Ratings are as of May 31, 2013.
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Transit Projects Are Gaining Steam In The Canadian PPP Market

This year, hospital projects in British Columbia and Ontario continue to spur momentum in the Canadian market. Although we did not assign any new ratings in the first half of 2013, we expect the pace to pick up in the remaining months to match that of 2012 when we assigned three new project ratings. There has also been a marked change in underlying asset types. Having tendered most of their planned greenfield hospital projects, governments are now shifting attention to transportation projects, which we expect to fuel Canada's next wave of PPP over the next five years. Light rail transit (LRT) is emerging as a promising new sector, with several high-profile projects planned in Ontario. In November 2012, Infrastructure Ontario updated its project pipeline to include five LRT lines. Edmonton and Winnipeg are also contemplating LRTs. These are following in the recent footsteps of Infrastructure Ontario's much-watched Ottawa LRT project that reached financial close in early 2013. The rise of LRT in Canada is well timed, in our view. Having more than a decade's experience with social PPP, domestic bond investors are well-positioned to branch out to new asset types in search of diversification and yield. LRT projects may raise a new set of risks unfamiliar for project investors because the asset class is new and often entails complex technologies, including track operations and integration, which could have implications on construction costs, commissioning, service performance, and lifecycle interventions. In our view, train deliveries, geotechnical risk-sharing, tunneling technologies, traffic management, and performance standards also factor into project credit risk. Consequently, we believe governments will be looking to strike the right balance between risk transfer and the cost of private sector financing. Meanwhile, the credit quality of our existing base of rated projects continues to hold up relatively well. With nine of our 16 rated projects still in construction, changes in project credit quality have been mostly a function of changes in the credit quality of construction contractor counterparties. To this end, our rating actions on SNC-Lavalin Group Inc. caused us to take similar actions on two project ratings in which the company is a construction contract guarantor. Our rated projects remain fairly well insulated from macroeconomic conditions, given the fully contracted nature of their operating cash flows. The vast majority are availability-based PPP involving hospitals and, to a lesser extent, expressways and other social infrastructure. Domestic capital markets have also remained receptive to new project debt issues, particularly those rated in the 'A' category.
Growing Opportunities Across Asia-Pacific

Activity across the PPP sector continues to be strong. Australia's recently announced 2014 federal budget includes more than A$10 billion for the road and rail sectors that have been earmarked for multi-billion projects that will likely require a significant contribution from the private sector. This includes the F3-M2 motorway in Sydney and the East-West tunnel in Melbourne. As many of these projects are likely to include patronage risks, risk-sharing models are being explored, including public sector capital contributions. The negative experience with real toll projects, including
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the newly opened A$3 billion-plus Brisbane Airport Link that has gone into administration, continues to drive restraint from Australian investors and we expect entirely greenfield toll projects to be very challenged in attracting private funding without some form of external support. In addition to new projects, we expect a renewed interest in the privatization of infrastructure assets, particularly following the successful sale of two major ports in Sydney, which attracted significant interest, both domestically and overseas. Existing infrastructure assets remain very attractive to investors given their more predictable performance compared with greenfield projects. These growing opportunities for fixed income investors to get exposure to assets that have been traditionally funded in the bank market will likely improve liquidity, knowledge, and visibility of the sector and, in turn, would ultimately benefit the broader industry, including PPP projects. Growth in Asia continues to be strong and focused on different sectors, with a clear bias toward power projects. China's announcement of $150 billion worth of infrastructure spending adds around 60 projects to the regional pipeline, with a heavy emphasis toward renewable energy projects and transport infrastructure. In Southeast Asia, Indonesia continues to develop its electricity generation capability by attracting private investment and offering the benefits of a contractual framework that has been in place for a number of years. Meanwhile, Singapore's transmission grid upgrade project is on track. We also expect renewed activity in the Malaysian power sector, and further exploration of social infrastructure projects in the Philippines. Banks continue to dominate funding for these projects, with Japanese and Chinese banks stepping in to fill the void left by the European banks after the global financial crisis. With respect to credit performance, the recent months have been somewhat uneventful for rated project finance transactions in Asia-Pacific. We assigned a rating on new debt raised by LoyVic Pty Ltd., a power station in the State of Victoria, with the rating partly supported by our view of likely support from the project's ultimate owners. We also withdrew our rating on Redbank Project Pty Ltd. due to insufficient information. Rating actions were limited to three outlook changes, with a marginal negative bias. Overall, the projects in the region continue to perform broadly as expected. That's primarily because the vast majority rely on availability-based revenues that are largely insulated from economic conditions. Given rating withdrawals over the past 12 months, only one transaction, Reliance Rail Finance Pty Ltd., continues to present some uncertainties regarding its long-term viability, although immediate funding challenges have been somewhat relieved, with more than 80% of the bank debt now drawn and the project performance continuing to improve. However, we expect that the company will face serious refinancing challenges toward the end of the decade.
Table 3
Asia-Pacific Rating Actions

From Broadcast Australia Finance Pty Ltd. Nexus Australia Management Pty Ltd. Reliance Rail Finance Pty Ltd. BBB/Stable BBB-/Stable CCC+/Stable CCC-/Stable To BBB/Negative BBB-/Negative CCC+/Positive CCC-/Positive Date Nov. 18, 2012 April 24, 2013 Nov. 6, 2012 Reason Expected weaker financial measures Possible deterioration of project operations due to dispute with offtaker Expected contiued project improvement
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Latin American Infrastructure Credit Quality Remains Healthy

About 62% of our rated Latin American infrastructure assets are concentrated in the transportation sector, mainly driven by toll roads (65%), while the remaining 35% are ports and airports. The revenues on the toll roads we rate depend on traffic volume. As such, the positive growth trends in the region have led to sound operating and financial performance. There were, nevertheless, a few exceptions during 2012, particularly in Mexico, where traffic volumes dropped on some of the rated toll road transactions due to security issues. However, in late 2012 and early 2013 this trend began to reverse. Transactions in the oil and gas sector have increased over the last six months. Also during 2012, we rated our first two renewables projects (included in the "Power" subsection of this report card). The overall credit quality of rated Latin American infrastructure transactions remains sound. Operating and financial performance continue to be in line with, or slightly above, expectations for most of the portfolio. Since October 2012, our rated portfolio has increased by 6%. We believe market and investor appetite remain strong, and we are positive about the fundamentals for the sector's development in the next several years. Infrastructure remains essential in spurring continued growth in the region. Nevertheless, political considerations influence the timing of many projects. Given our expectations for regional economic growth, we believe our assets will continue to show healthy performance in 2013.
Table 4
Latin American Project Finance - Rating/Outlook/CreditWatch Actions

Issue Aeropuertos Dominicanos Siglo XXI S.A Aeropuertos Argentina 2000 S.A. Fideicomiso 80425 (Monterrey - Cadereyta) Fideicomiso No. 978006 (Proyectos de Energia) Latin American Airports Holdings Ltd. Santos Brasil Participacoes S.A. NR--Not rated. To BB-/Stable/-B-/Negative/-BBB-/Stable BBB/Positive/-BB-/Stable/-NS: brAA/Stable/-From NR B/Negative/-BBB-/Negative BBB/Stable/-NR NS: brAA+/Stable/-Date Oct. 23, 2012 Oct. 30, 2012 Nov. 23, 2012 March 13, 2013 Oct. 23, 2012 Dec. 4, 2012 Reason New rating New rating New rating Based on Panama's upgrade and the project's higher-than-expected performance New rating New rating
Issuer Review
Table 5
Issuer/Rating/Comments Power
Astoria Generating Co. Acquisitions LLC (CCR: B-/Positive/--) In January 2013, the New York Independent System Operator approved Locational Capacity
Country
Analyst
U.S.
Trevor J.
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Requirements for Zone J to 86%, above our upside case expectation of 85.4%. If the company can save costs in line with our expectation over the next six months, we would likely upgrade the rating by one notch. Under our upside case, we estimated adjusted debt to EBITDA of about 4.5x for 2013 and below 3.5x for 2014 and adjusted funds from operations (FFO) to debt of about 10% in 2013 and above 17% for 2014. Baesa - Energetica Barra Grande S.A. (brAA/Stable) BAESA has performed in line with our expectations, with a stable debt service coverage ratio (DSCR) and ample headroom with its financial covenants. We expect the company to continue posting a tight DSCR of about 1x.
D'Olier-Lees
Brazil
Alvaro Astarloa
Belfast Gas Transmission Financing PLC (AA-/Stable (insured); A/Stable (SPUR)) The U.K. regulator has issued a Request For Comment with a proposal for a single gas network Ireland operator that would replace the existing three operators. Regardless of the final decision, we do not expect the regulatory framework for Belfast Gas Transmission Financing to materially affect the creditworthiness of the project, which is the main factor underpinning the ratings and outlook on its debt. We understand that, as of the end of March 2013, the debt service reserve account remained fully funded with 1.8 million. On the same date, free cash balances (which include the ratio buffer amounts) stood at 7.1 million. Borger Energy Associates L.P./Borger Funding Corp. (B+/Stable) The DSCR is slightly above 1x and we expect very modest improvement given our expectations U.S. of continued low natural gas prices, which directly reduce gross margin and the project's cash flow. The December 2011 outage, which lasted until February 2012, caused the 12-month availability under the purchase power agreement (PPA) as of December 2012 to drop to 90.8%, slightly below the 92% target under the PPA. The effect of the outage rolled off in February 2013. Based on our gas price assumptions for the Southwest Power Pool of $2.87 per million Btu, we estimate 2013 DSCR to be about 1.1x. We view the project's liquidity, consisting of six months debt service reserve and cash balance of about $7.8 million, as providing some cushion against low gas prices. Brooklyn Navy Yard Cogeneration Partners L.P. (CCC/Watch Dev) Brooklyn Navy Yard is a 220 megawatt (MW) to 300 MW gas- and oil-fired cogeneration power U.S. plant in Brooklyn, N.Y. that has a 40-year PPA with Consolidated Edison Inc. The 'B' rating reflects our forecast that coverage of annual DSCR will remain about 1x between 2011 and 2016. Senior-lien debt service coverage in recent years has ranged from a low of 0.85x in 2008 to a high of about 1x, with coverage of 0.81x for the 12 months ended June 2012. Recent developments include the successful resolution of several state tax issues, although one city tax issue remains to be finalized. The project's liquidity includes a debt-service reserve equal to about 12 months of debt service in most years, funded with letters of credit (LOC) totaling $29.6 million and an $18 million working capital facility. Cachoeira Paulista Transmissora de Energia S.A. (brAA+/Stable) CPTE performed somewhat below our expectations in December 2012, with a DSCR ratio of 1.12x. However, the availability of the power line was 100%. We expect a DSCR above 1.3x in March 2013.
Jose Abos
Jayne M. Ross
Jatinder Mall
Brazil
Alvaro Astarloa
Cedar Brakes I LLC (BBB/Stable) Cedar Brakes I, in back-to-back PPAs, receives power through its role as offtaker in a long-term U.S. PPA with Exelon Corp. and provides energy through its role as supplier in a long-term PPA with Public Service Electric & Gas Co. The rating on CBI is linked to the weaker of the corporate credit rating of these key counterparties. CBI has operated as projected with a DSCR of 1.03x as of the last debt service payment date in February 2013. We estimate that the project will receive net payments of $33.3 million for its power deliveries through August 2013, which along with its liquidity reserve of about $1.3 million will be sufficient to make its final debt service payments of about $1.3 million in August 2013 and $32.7 million in February 2014. CinCap V LLC (BBB+/Negative) The rating on the bonds are linked to the key counterparties of CinCap V, which is a monetization U.S. of a PPA that is structured as a project. We base the ratings on the lowest of the corporate credit ratings assigned to CinCap V's energy supply guarantor Duke Energy Corp, the long-term power
Antonio L. Bettinelli
Jatinder Mall
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purchaser Central Maine Power Co., and Cinergy Corp., a guarantor of rental payments to CinCap V's majority owner. The combined DSCR is structured to be about 1x through the 2016 maturity. Overall performance has been in line with expectations and the DSCR is at 1x. Colver Power Project (BBB-/Stable) Colver's operational performance in 2012 was good and remains consistent with previous years. U.S. The facility had a minor forced outage in second quarter and a 12-day planned outage in October, but these minimally affected performance ratios. The capacity factor was 97.4% in 2012, down slightly from 99.8% in 2011. The senior DSCR for 2012 was 1.33x, compared with 1.47x for 2011. Coverage for senior debt service and equity rent obligations for the corresponding periods was 1.12x and 1.22x. Colver's major maintenance program to be carried out in late 2013 is scheduled to cost around $1.3 million, to be funded with operating revenue. We believe that credit measures will be stable through this period. Senior debt service plus equity rent payments reached a maximum in 2011, and are scheduled to decrease in future years, and we expect subsequent coverage to recover above 1.35x for senior debt. ContourGlobal L.P. (CCR: B+/Stable/--) On Jan. 18, 2013, we assigned our 'B+' corporate credit rating to ContourGlobal (CG), a U.S. developer with equity interest in 21 electric power generation and district heating assets totaling about 2.77 gigawatts. We view the business risk profile to be "weak" and financial risk profile to be "aggressive". Applying our developer methodology, we assigned a quality of cash flow score of '8' to CG's portfolio, after considering currency and country exposure, relatively weak counterparties, construction and operational risk, and some technology risk (particularly at the Rwanda lake-gas project) offsetting the approximately 90% contracted revenue. Cordova Funding Corp. (BB/Stable) Under our base case, we expect a DSCR of about 1.09x for 2013. Plant availability has been 100% U.S. since 2004. The project has high liquidity and is currently trapping cash. The project has more than 1.75 years of liquidity available in reserve accounts. In 2012, CECG dispatched the plant only in August, and we expect that Cordova's dispatch level will remain very low in the next couple of years. Covanta Holding Corp. (CCR: BB-/Stable) Covanta's financial performance was slightly weaker than our expectations in 2012 driven by U.S. lower EBITDA and somewhat higher debt levels. Covanta's acquisition of an energy-to-waste facility in December 2012 added about $64 million to leveraged debt profile. We expect more volatility in cash flow, mostly in the energy and metal revenue sectors, as well as contract renewal risk. We expect total debt to EBITDA to remain high at 5x to 5.5x, which is very weak for an aggressive financial risk profile, to improve gradually to below 5x. Covanta's aggressive financial policy continues to remain a key rating concern. We expect liquidity to remain strong given the company's good cash flow generation and sizable bank facility. Crockett Cogeneration, A California L.P. (BBB-/Negative) We expect weaker financial performance due to a number of outages that have occurred at the facility in the past two years. The DSCR for 2012 was 1.23x. For 2013 through 2016, when capacity bonus payments will be lower, we expect a DSCR of 1.7x to 1.8x. The plants capacity factor for 2012 was about 80%.
Ben L. Macdonald, CFA
Jayne M. Ross
U.S.
Rubina Zaidi
DTE Energy Center LLC (A-/Stable) DTE continues to perform in line with expectations despite some operational issues in 2012. The U.S. project's DSCR was stable at 1.52x as of Dec. 31, 2012 compared with 1.53x for year-end 2011. The DTE assets are integral and necessary parts of the manufacturing operations at Daimler North America Corp. factories. Overall, we expect the project to continue to perform in line with our expectations with the DSCR remaining around 1.52x through the debts term. East Coast Power LLC (BBB/Stable) The project sustained damage and an outage due to Hurricane Sandy and returned to service in late December 2012. East Coast filed an insurance claim of about $19 million of which it had received $15 million as of January 2013. Despite the outage, the project's financial performance has been solid, with a DSCR of above 2.6x in 2012. Total annual debt services will decline to about $35 million during 2013-2015 from about $53 million in 2012. As such, we expect the
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coverage to increase to more than 4x, in line with lower debt service. Elwood Energy LLC (BB-/Negative) Elwood, in which EquiPower Resources Holdings LLC is acquiring a 50% interest, owns a 1,409 MW natural gas simple-cycle merchant peaking power facility near Chicago. With one of the power supply agreements (PSA) expiring, about 56% of the projects capacity is now exposed to merchant markets. We believe debt service coverage in 2013 would be near or below 1x due to the PSA's expiration and a particularly low PJM Interconnection capacity auction price in 2012-2013. However, we believe that project liquidity will be enough to cover any potential shortfalls and that coverage will improve in 2014 and beyond. Equipower Resources Holdings LLC (BB/Stable) The addition of the Liberty facility increased the initial debt burden to $409 per kilowatt (kW) from $291 per kW. We expect DSCRs to range from 1.13x in 2013 to 2.88x in 2018, on a consolidated debt basis. We continue to believe that refinancing risk is manageable because the consolidated debt burden should be about $225 per kW at maturity. Essential Power LLC (BB/Stable) Operations were strong, with overall availabilities of above 90% for 2012. Liquidity exists in the form of a $100 million revolving credit facility, which is entirely available. We expect the project will maintain consolidated DSCRs of between 1.8x and 2.5x through 2015. Exeltium S.A.S. (CCR: BBB-/Stable) Exeltium S.A.S. entered into lock-up at the end of 2012 following the deteriorating credit quality of its put-option provider, which is also a material offtaker. We believe that this could dampen Exeltiums credit quality, only if coupled with a sustained drop in the price of electricity on the French market. The latter would increase the likelihood of offtakers opting out of their contracts in 2020. Furthermore, despite the fact that the average credit quality of the offtaker's pool has deteriorated, we believe the revenue counterparty does not yet constrain the project's current rating. The rating is discounting the structures key weakness, refinancing risk.
U.S.
Richard W. Cortright Jr.
U.S.
U.S.
Rubina Zaidi
France
Manuel Dusina
FREIF North American Power I LLC (BB-/Stable) Fleet-level operational performance was satisfactory with average availability above 90%. U.S. However, Crockett's performance under a new market index formula regime will be key to the portfolio's credit measures. It had operating problems in August 2012 and a recurrence could lead us to downgrade the FREIF rating. We estimate the DSCR for the 12 months ended March 31, 2013 to be about 1.6x. We expect future coverages to be about 2x. Fideicomiso 80.481 (Proyectos de Energia) (BBB/Positive) We base the 'BBB' foreign-currency debt rating on Proyectos de Energia's $100 million 9.75% senior-secured notes on the foreign-currency rating on its sole investment-grade off taker, Mexican state-owned electricity company CFE. Bond repayment relies mainly on a one-source stream of revenues, and the structure does not consider a debt-service reserve. The project services debt on a one-to-one basis primarily from quarterly payments by CFE, and principal is paid in full, at maturity, in July 2013, which we expect will represent a concern. Proyectos de Energia may use CFE's excess payments if it faces potential cash shortfalls. Also, Siemens has taken full responsibility under potential debt-service shortfalls, even if it sells its stake in Proyectos de Energia.
Rubina Zaidi
Mexico
Gonzalez Maria del Sol
Golden Americas Ltd. (B-/Stable) At the end of 2012, Golden Gate Energy Investments (GGEI) announced its integration with Colombia Termocandelaria Power Ltd. (TPL), a company that owns a 314 MW electricity plant near Cartagena, Colombia. The merger is neutral for ratings, mainly because it was in Termobarranquilla S.A. E.S.P.'s (TEBSA) original shareholder agreement and we do not expect a major effect from a financial or operational perspective. Golden Americas has an indirect stake in TEBSA through its 26.3% participation in GGEI. For analytical purposes, GGEI's cash flow streams can be divided into two periods. Until the PPA between Gecelca and TEBSA expires in 2016, Golden Americas receives a management fee of $918,000 plus dividends from GGEI, funded from the partial interest payment on subordinated debt. In our base-case, this should result in an average fixed-charge coverage ratio of about 1.3x for GGEI's debt. From 2016 through 2018, TEBSA's ability to cancel subordinated debt will depend on energy prices, the
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dispatch rate, and availability payments. Golden State Petroleum Transport Corp. (B/Negative) The project is drawing on its reserves to meet its debt service. We estimate that the project U.S. requires a break-even charter rate, which is significantly above the market, to service its debt until maturity. The current cash balance covers less than three years of debt service. Because of the strong liquidity balance, the project could continue meeting debt service until early 2016 when we believe it could face a default scenario if spot rates remain at current levels. Green Country Energy LLC (BBB-/Stable) The project achieved a DSCR of 1.39x for the year ended Dec. 31, 2012, relatively flat with 2011's U.S. DSCR of 1.38x due to lower major maintenance funding in the past two years. We expect the project's full-year 2013 coverage to be about 1.4x, based on our estimate of major maintenance funding of about $5 million and stable operating performance. Through April 2013, the project's peak and off-peak contract availability remains at more than 99%. Capacity factors in 2012 were up and this change affects the base load dispatch profile and major maintenance cycle, but we do not believe it will materially affect the project's future performance. Indiantown Cogeneration L.P. (BBB-/Stable) Indiantown recently retired a portion of its senior secured debt and refinanced its existing U.S. subordinated notes. Our expectation is that the project's actual fuel costs in the near term will be generally aligned with the fuel index used in the energy cost reimbursement calculation such that the total DSCR remains above 1.2x. Iracema Transmissora de Energia S.A. (brAA-/Stable) Iracema has performed in line with our expectations, with a DSCR of 1.37x as of December 2012, Brazil all reserve accounts are fully funded, and 100% availability of the line. The project expects to go through its first tariff review in first half of 2013. However, we don't expect this to affect the projects outlook. Itapebi Geracao de Energia S.A. (brAA+/Stable) Neonergia S.A. fully and unconditionally guarantees Itapebi's rated issuance. Therefore, the final national scale ratings reflect the structural subordination related to the holding company's guarantee and do not depend on the power plant's performance.
Rubina Zaidi
Jeong-A Kim
Nora Pickens
Alvaro Astarloa
Brazil
Alvaro Astarloa
Kincaid Generating LLC (BBB-/Stable) Kincaid's units, which EquiPower Resources Holdings LLC is acquiring, continue to operate well U.S. and meet the PPA requirements; we continue to expect that Kincaid will achieve availability rates of more than 90%, which is consistent with past performance. We consider it highly likely that the DSCR would be below 1x in 2013 and only marginally better in 2014, but still below 1x. This risk is mitigated by about $163 million in cash at the parent, which we expect it will use to service debt in 2013 and 2014. Kiowa Power Partners LLC (BBB-/Stable) The project performed in line with our expectations for 2012, with a DSCR of 1.33x indicating U.S. that the project has overcome its operational issues that have been a rating risk in the past. Higher-than-forecast property taxes along with decreased capacity pricing following the extension of its electricity manufacturing agreement will likely lower the coverage over the next three years. Favorably, the projects debt service decreases in 2016, leading to improved coverages throughout the remaining debt term. The peak and off-peak availabilities were 99.22% and 98.58% for Power Block I and 98.47% and 98.02% for Power Block II as of Dec. 31, 2012. La Frontera Generation LLC (BB-/Stable) We recently assigned our BB- rating and 2 recovery score to La Fronteras first-lien senior U.S. secured $1.15 billion term loan B. The rating mainly reflects the volatility of cash flows due to merchant conditions, partially offset by commodity hedges that cover about 72% of gross margin in 2013-2015. While our base case cash flow is healthy and results in no refinancing risk at maturity in September 2020, there is still considerable downside risk, as volatile merchant revenue will be required to amortize debt to a manageable level upon maturity. Under our base case scenario, we forecast gross margins of roughly $250 million to $350 million annually, leading
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to robust DSCRs, averaging about 4.7x between 2013 and 2019 and zero debt at maturity. La Paloma Generating Co. LLC (B/Negative) La Paloma is exposed to carbon taxes under California's cap-and-trade law, effective January U.S. 2013. Three of its four units are exposed to merchant markets and the carbon cost is not passed through to the tolling offtaker for the unit that is under contract. Two of the merchant units are hedged through 2013 and 2015, but we expect cash flows to be constrained under our carbon price assumption of $17 per ton. We also expect high refinancing risk for the $408 million of debt expected at maturity. To help mitigate the near-term financial impact, the project maintains sufficient liquidity and is working with the California Air Resources Board to allow it to pass through the carbon taxes. Unless state regulators provide adequate allowances, we expect the project's DSCR to fall below 1x. Lea Power Partners LLC (BBB-/Stable) In December 2012, the project had operational changes that should modestly reduce the plant's cost profile and a new long-term service agreement was reached with operations and maintenance provider Mitsubishi through the lesser of 15 years or two maintenance cycles. With these measures, we expect the project's DSCR is expected to average between 1.3x and 1.4x through the debts term. For fiscal 2012, the plants capacity factor and availability were 61% and 90% as the plant carried out a planned outage in October 2012. Longview Power LLC (B-/Negative) Longview continues to have lower-than-expected cash flow and will require reserve draws to meet 2013 obligations by drawing on reserves. Refinancing debt maturing in February 2014 at Longview and Dunkard Creek will be very difficult in our opinion based on continued low power prices; we expect to see some type of debt restructuring by mid-February 2014. LoyVic Pty Ltd. (BB+/Stable) Loyvic continues with sound operating performance. The project achieved a DSCR of 1.8x as of Dec. 31, 2012, which includes a required principal payment of A$25 million.
U.S.
U.S.
Terry Pratt
Australia
Richard Creed
LSP Madison Funding LLC (BB+ (prelim)/Stable) On June 3, 2013, we assigned our preliminary BB+ rating to LSP Madisons proposed $450 U.S. million first-lien term loan B. LSP Madison has removed two additional assets, Blythe and Cherokee, from its portfolio. Still, we believe the project's more stable revenue streams, consisting of capacity payments, ancillary services, and a PPA and hedge agreement will allow for significant deleveraging over the loan's tenor, even if merchant power revenues are weak. We expect a minimum DSCR of 2.65x and average coverage of about 3.86x from 2013 to 2018. Mackinaw Power Holdings LLC (BB-/Stable) Financial performance at Mackinaw Holdings has been good, with interest coverage of 3.7x as of U.S. Oct. 31, 2012. For the 10 months ended Oct. 31, 2012, Mackinaw Power made distributions of $13 million. From these distributions, Holdings repaid $5 million on its term loan, reducing its leverage to $119 million compared with $136 million expected by the end of 2012 under the original pro forma projections. We do not expect significant distributions from Mackinaw Power because of high major maintenance spending and debt service requirements at Mackinaw Power. As such, we do not expect material deleveraging at Holdings. Mackinaw Power LLC (BBB-/Stable) The Mackinaw Power facilities continue to have high generation volume and starts due to low gas U.S. prices. Financial performance has improved this year and is in line with our expectations, with a DSCR of 1.61x as of October 2012 compared with 1.42x as of December 2011. This improvement reflects the receipt of $3.75 million in insurance proceeds in April 2012 for the May 2011 forced outage and from higher capacity revenues due to the absence of any impact from the May 2011 outage. We expect DSCRs in 2013 and 2014 to decline to 1.2x to 1.3x. The expected decline in DSCR reflects high major maintenance funding and debt service requirements. Despite the decline in DSCR over the next two years we expect it to average around 1.4x through the debts term. Mexico Generadora de Energia S. de R.L. (BBB/Stable)
Rubina Zaidi
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MGE is a bankruptcy-remote, limited-purpose company that was created with the sole purpose of Mexico developing, building, operating, and maintaining two nominal 250 MW) natural gas-fired combined-cycle generation facilities. MGE has entered into a long-term energy self-supply agreement (ESSA) contract with Mexicana de Cobre S.A. de C.V. and Buenavista del Cobre S.A. de C.V. (consumer partners) and their parent Minera Mxico S.A. de C.V., as the ESSA guarantor. The project issued $575 million senior secured bonds that will be amortized semiannually through a schedule in which about 43% of the principal is paid on the last quarter of the bonds' term. We expect the project to maintain an average DSCR of 1.43x and a minimum of 1.4x, throughout the term, even if electric energy availability is lower or if the consumer partners don't reach expected energy consumption levels. To date, the plant's construction is on schedule. Midland Cogeneration Venture L.P. (BBB-/Stable) Midland Cogeneration Venture is a 1,900 MW natural gas fired plant in Midland, Mich. and is U.S. owned by OMERS Administration Corp. The project has a PPA with Consumers Energy that is co-terminal with the 2025 maturity of the $560 million of senior secured notes. The DSCR for the 12 months ended September 2012 was about 2.6x, above our base case. The plant benefitted from low gas prices in 2012 because of higher dispatch and a more efficient operating configuration. We expect debt service coverage to average 1.9x over the debts term of the debt. Nexus Australia Management Pty Ltd. (BBB-/Negative) Nexus is currently in a dispute with Hydro Tasmania over operating protocol of Basslink. In our Australia view, an adverse outcome from the dispute could have negative implications on the ongoing costs as well as the asset life. In addition, we believe that a prolonged dispute could also impair the upcoming refinancing of the debt. The project is operating well, with an availability level of better than 99% for 2012. However, the revenue adjustment under the Commercial Risk Sharing Mechanism continues to be negative, and is negative 15% for the same period. We believe that the floor adjustment of negative 20% is still likely to allow Basslink to maintain a minimum DSCR of 1.35x in the near term, all else being equal. NSG Holdings LLC (CCR: BB/Stable) In January 2013, we assigned a corporate credit rating to NSGH reflecting the company's strong U.S. contracted revenue profile with creditworthy counterparties, favorable fuel supply contracts and solid operating record tempered by its moderate portfolio diversity and high debt balances following the dividend recapitalization. We expect NSGH's financial ratios to improve in the next three years as the company's key plants, Orange, Mulberry and Vandolah, will benefit from favorable contracts and low gas prices. For 2013, we expect FFO to debt will improve to 13.2% and the leverage will remain high at about 5.3x followed by significant improvement to about 4.1x in 2014, when the bond amortization kicks in. Orange Cogen Funding Corp. (BBB/Positive) Orange Cogen continues to perform well, meeting the operational performance standards U.S. pursuant to the two PPAs. As of December 2012, the 12-month rolling capacity factor for Progress' PPA was 94.58% and for TECO Energy's PPA it was 92.47%. The DSCR for year-end 2012 was 2.26x, slightly better than the budgeted expectations. We believe the prevailing low gas prices benefit the plant's margins along with the new fuel supply and transportation contracts, effective from 2016, and supported by off-take arrangements through debt maturity, will strengthen the project's financial performance. Panda Sherman Power LLC (B/Stable) Sherman is a special-purpose, bankruptcy-remote operating entity, set up to build the Panda Sherman Power Plant, a 758 MW natural gas-fired facility in Sherman, Texas, about 60 miles north of Dallas. At this time, construction is slightly ahead of schedule and we expect the power plant to begin operations in 2014. In our view, the project has sufficient liquidity during the construction phase and that the cash flows, while volatile, will comfortably cover debt service throughout the debt tenor.
Monica Ponce
Trevor J. D'Olier-Lees
Andrew Choi
U.S.
Nora Pickens
Panda Temple Power LLC (B/Stable) Panda Temple Power is a greenfield project that is developing a 758 MW natural gas-fired power U.S. plant in Temple, Texas with about $463 per kW of initial debt. Construction is expected to be completed by 2014 and the plant will dispatch into the ERCOT North Interconnect market. While Panda Temple presently faces construction risk, once developed its merchant risk is largely offset
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by hedges for substantially all of its capacity for the next four years. Under our assumptions, there is very little pay-down of debt over and above the mandatory amortization, resulting in considerable refinancing risk at $390 per kW of debt at maturity. We expect the DSCR to average about 1.1x over the near term, with better coverage possible if ERCOT implements a capacity market. The plant remains on schedule for completion by the end of 2014. Panda Temple II Power LLC (B/Stable) Temple II is a special-purpose, bankruptcy-remote operating entity, set up to build the Panda U.S. Temple II Power Plant, a 758 MW natural gas-fired plant in Temple, Texas, about 130 miles south of Dallas. At this time, construction is on schedule and we expect the power plant to begin operations in 2015. In our view, the project has sufficient liquidity during the construction phase and that cash flows, while volatile, will comfortably cover debt service throughout the debt tenor. Panoche Energy Center LLC (BBB-/Negative) Panoche is currently in a dispute resolution process with off-taker Pacific Gas & Electric Co. (PG&E) on the pass-through of the project's greenhouse gas emissions costs associated with the California cap-and-trade program. Inability to fully pass through these costs could substantially weaken the project's credit. While all four of Panoche's units have been operating well with availability of 99.9% in 2012, financial performance was affected by higher costs related to legal fees for arbitration with PG&E, higher debt service levels, and the negative impact of working capital changes. The DSCR was 1.3x for year-end 2012, down from 1.39x for year-end 2011. Petropower Energia Ltda. (BBB-/Stable) Petropower is a delayed coker, hydrotreater, and net 59 MW cogeneration facility in Chile. The project's sponsors are Foster Wheeler AG (85% of the total), Empresa Nacional del Petroleo (7.5%), and ENAP Refinerias S.A. (7.5%). The project's operating and financial performance in 2011 generated strong operating revenues leading to a DSCR of 1.87x in 2011. Moreover, as of third-quarter 2012, Petropower has collected almost all of the remaining amounts due under the project's property damage and business-interruption claims. Considering a plant availability rate of 90%, we expect a DSCR in 2013 of around 2.05x, and we expect Petropower's debt to be fully amortized by its legal maturity date on Feb. 15, 2014.
Nora Pickens
U.S.
Jatinder Mall
Mexico
Monica Ponce
PPL Montana LLC (BBB-/Negative) PPL Montana's margins are under pressure through 2015 from a combination of weakening U.S. power prices in the Mid-Columbia market, a larger merchant exposure, increasingly stringent environmental regulations, and a weak economic environment in Montana. We anticipate that PPL Montana's coverages will deteriorate to below 1x in 2015 without the expected Kerr dam sale or parent support. As such, we see parental support as increasingly important to the ratings. For the year 2012, the coverage ratio declined marginally to 3.48x from 3.5x as of 2011. Liquidity is comfortable as a PPL affiliate has extended a $100 million credit line which now expires in May 2015. Premier Transmission Financing PLC (A/Stable (insured); A/Stable (SPUR)) The U.K. regulator has issued a Request For Comment with a proposal for a single gas network U.K. operator, which would replace the existing three operators. Regardless of the final decision, we do not expect the regulatory framework for Premier Transmission Financing to materially affect the creditworthiness of the project,, which is the main factor underpinning the ratings and outlook on its debt. We understand that, as of the end of March 2013, the debt service reserve account and the cost reserve account remained fully funded with 9.5 million and 3.1 million respectively. On the same date, free cash balances (which include the ratio buffer amounts) stood at 8.1 million. Race Point Power II LLC (BB/Stable) In January 2013, the Spanish government approved a flat tax of 7% payable by all energy U.S. suppliers, irrespective of the power generation method, to curb its tariff deficit. As a result, we expect that NeoElectra's distribution will decline by about 50% from our previous base case. On the other hand, Michigan Power refinanced its debt in October 2012 and distributed the proceeds (about $33 million) to Race Point. Race Point used this distribution to pay down its debt which partially offsets the increased risk due to the tax imposition at NeoElectra. We now expect that parent operating cash flow (POCF) to interest and POCF to debt ratio for the next three years to average about 2.3x and 20.2%, respectively. Following a cash flow sweep in January 2013, debt
Aneesh Prabhu, CFA, FRM
Jose Abos
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outstanding has gone down to $69.5 million, and we expect that about $20 million will be outstanding at maturity under our base case. Red Oak Power LLC (B+/Negative) At the end of January 2013, Red Oak suffered a forced outage. We lowered the rating to reflect U.S. the low coverage level and the need for the project to draw on the debt service reserve fund over the next few months. We expect the 2013 DSCR (before payment of management fees and fuel conversion volume rebate payments to be close to 1.0x. We expect an improvement in 2014 DSCR to about 1.15x. Rowville Transmission Facility Pty Ltd. (A-/Stable) Rowville Transmission Facility continues its excellent performance. The DSCR of 2.19x as of March 25, 2013 is in line with expectations. Sacramento Municipal Utility District Financing Authority (BBB/Stable) The project continued to demonstrate sound operational performance, with a historic PPA availability of close to 100%, which is well above the 90% required for the offtaker, Sacramento Municipal Utility District, to make its contractual tolling payment equal to 1.5x monthly debt service coverage. However, an increase in certain non-pass-through maintenance costs caused the project's DSCR to decline to 1.29x in 2012 as compared with 1.41x in 2011. The project underwent a major maintenance overhaul in late 2012, which cost $8.2 million and the second phase of work is estimated to be complete by March 2013. The project will pay the cost of this maintenance from funds in the overhaul reserve. We anticipate that the project's heat rate may improve after major maintenance is complete. Sacramento Power Authority (BBB/Negative) In February 2013, we revised the outlook on SPA reflecting the uncertainty following steam off-taker Campbell Soup Co.'s notice to terminate the steam host agreement effective October 2013. The project is seeking either a change of status from a cogeneration facility to a combined-cycle plant or a new steam off-taker. Although the loss of steam sales would cause off-taker Sacramento Municipal Utility Districts capacity payments to increase to 1.26x from 1.2x; after allowing for non-pass-through operating costs at the plant, we estimate the DSCR could decline to 1.15x to 1.25x, weak for the current rating. The DSCR (including capital spending) was stable at 1.34x as of year-end 2012.
Rubina Zaidi
Australia
Richard Creed
U.S.
U.S.
Sapphire Power Finance LLC (B+/Stable) Power generator Sapphire Power Finance is issuing $380 million of senior secured facilities U.S. consisting of a $350 million term loan B due 2020 and a $30 million revolving credit facility due 2018. The project intends to use the net proceeds to pay a dividend to sponsors and refinance its existing debt due 2016 and 2018. This results in a meaningful debt burden at maturity given the portfolios advanced age, partially offset by stable cash flows generated from capacity revenues and fixed premium payments related to the projects heat rate call options. Under our base case assumptions, we forecast EBITDA of roughly $35 million to $45 million annually, leading to adequate DSCRs, averaging about 1.3x between 2013 and 2020 and $363 per kW of debt at maturity. Star West Generation LLC (B+/Stable) Star West Generation LLC and GWF Energy Holdings LLC have recently refinanced and combined their portfolios into one portfolio, to be called Star West Generation LLC. Star West has upsized the term loan to $750 million from the initially proposed $725 million. The incremental proceeds are being used to fund a day-one distribution to Star West's shareholders. Our expectation for the average consolidated DSCR is around 1.3x and on a holding company basis is around 1.6x.
Nora Pickens
U.S.
Rubina Zaidi
Tenaska Alabama II Partners L.P. (BBB-/Stable) Operationally, the project has recovered from the forced outage in 2011 with performance in line U.S. with historical levels. Peak and off-peak availabilities for six months of the contract year beginning June 1, 2012 were at 99.32% and 99% compared with 97.68% and 92.78% respectively, for the contract year ended May 31, 2012. Historically, the project has achieved peak and off-peak availability above the PPA guarantees. Debt service coverage for the 12 months ended Dec 31, 2012, was 1.39x, similar to the past two calendar years. We expect the DSCR to improve
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as the project will be reimbursed by General Electric Co. (long-term service agreement provider) for the nonavailability penalties for the contract year ending May 2012 because of the October 2011 forced outage. Tenaska Alabama Partners L.P. (BB/Stable) Operational performance was strong, with peak and off-peak availabilities remaining above 98% U.S. for the eight months ended Dec. 31, 2012, similar to the contract year ended April 30, 2012. The DSCR for the 12 months ended Dec 31, 2012, was 1.15x, excluding major maintenance costs funded with unrestricted cash. During the past few years, the project reduced equity distributions, and has been reserving cash for the 2012-2013 outage due to hot gas path inspections and compressor upgrades on all three units. We believe that unrestricted cash balances are adequate to service the project's near-term major maintenance costs. Tenaska Gateway Partners Ltd. (BBB-/Stable) Tenaska Gateway's financial performance for year-end 2012 was impaired by two major forced U.S. outages that resulted in nonavailability payments of $4.4 million. While the capital repair costs are covered under the project's compressor coverage, the time lag between nonavailability payments to Shell and reimbursements from General Electric under the long-term service agreement implies that penalty payments made to Shell will not be recovered from GE until July 2013. As a result, the project's DSCR dropped to 1.21x in 2012. For 2013, we expect coverage will likely improve to 1.4x to 1.45x as the project will be reimbursed. The on- and off-peak availabilities for the five months ended December 2012 were 85.4% and 77.9%, respectively. Tenaska Georgia Partners L.P. (BBB-/Stable) Operational performance continues to be strong, with annual and summer availabilities of about U.S. 100% for the six months ended Dec. 31, 2012, similar to the last five contract years. The project's DSCR for the 12 months ended Dec 31, 2012, was 1.46x, similar to the average for the past five calendar years. Based on our base-case scenario, we project that the DSCR will remain in the 1.37x to 1.47x range through 2018 with an average of 1.57x through 2029. Tenaska Oklahoma I L.P. (BB-/Stable) The project repays its debt with distributions from Kiowa Power Partners and is linked to Kiowa's U.S. performance. The combined DSCR for year-end 2012 was 1.16x, up from 1.10x in the prior year driven by stabilization of operations at Kiowa. Tenaska Virginia Partners L.P. (BBB-/Stable) For the contract year beginning June 1, 2012, the peak and off-peak availabilities were 94.7% and U.S. 96.3% as of Dec. 31, 2012. The capacity factor was 72.6% for the same corresponding period. The project's DSCR improved to 1.45x for year-end 2012, up from 1.37x for year-end 2011 driven by the project's recovery of the availability penalties due from General Electric. For 2013, we expect the coverage to remain stable at 1.41x. TPF Generation Holdings LLC (BB/Negative) TPF Generation recently refinanced its credit facilities by issuing a $425 million first-lien term U.S. loan B and a $30 million first-lien revolving credit facility. Minimum and average DSCRs in our base case are 0.7x (May-Dec. 2013) and 1.7x (1.9x and 2.3x, including a liquidity reserve that has been put into place). Topaz Power Holdings LLC (BB-/Stable) Topaz Power Holdings owns five natural gas-fired power-generation facilities in the ERCOT U.S. South region. We believe that the project's heat rate call options will provide a base level of cash flows until market conditions and merchant cash flow improve. The project continues to amortize debt as forecast by our original rating. We affirmed our preliminary rating in February 2013 when the project upsized its debt to $640 million. During 2012, the operating performance remained solid at all plants. We expect debt coverages to remain at about 1.1x to 1.2x over the near term. Termopernambuco S.A. (brAA+/Stable) Neoenergia fully and unconditionally guarantees Termopernambuco's debenture issues of R$40 million and R$90 million. Therefore, the final national scale ratings reflect the structural subordination related to the holding company's guarantee and thus do not depend on the power
Rubina Zaidi
Mark Habib
Brazil
Alvaro Astarloa
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plant's performance. UMH Energy Partnership (A/Stable) We expect that the four plants, now in service, will operate within industry norms. Availability at the plants has been comfortably above the levels stipulated in the hydroelectric energy supply agreement, which mimics the cash flow stability and cost recovery assurance of a typical Canadian utility framework. We expect the recourse release date to occur later this year or early in 2014.
Canada
Stephen R.W. Goltz
Utility Contract Funding LLC (BBB+/Stable) Utility Contract Funding, in back-to-back PPAs, receives power through its role as offtaker in a U.S. long-term PPA with Morgan Stanley Capital Group (MSCG) and provides power through its role as supplier in a long-term PPA with Public Service Electric & Gas Co (PSE&G). Morgan Stanley fully and unconditionally guarantees all of MSCG's payment obligations under the mirror PPA, including liquidated damages. The rating on UCF is linked to the weaker corporate credit rating on the key counterparties--in this case, that on PSE&G. The outlook on the UCF rating mirrors the outlook on the PSE&G rating. The transaction has performed as designed with a DSCR of 1.01x as of the last debt service payment date in April 2013. As of mid-April 2013, the project has repaid roughly 54% of its initial principal. Westway Group LLC (BB-/Stable) Westway is a limited purpose entity that provides bulk liquid storage, with a focus on agricultural U.S. and chemical end markets. The key credit risk is the short weighted average life of Westway's contracts of about three years, which exposes the project to recontracting risk. Under our base case, we assume storage utilization rates remain in the 93% to 95% range over the next few years while the project's average recontracting rate declines by about 5% to 10% in 2013 mainly due to challenging market conditions in the Midwest. The forecast DSCR in this scenario averages around 2.4x through maturity. We forecast 6.3x debt to EBITDA in 2013, improving to roughly 4.9x by 2015. Windsor Financing LLC (BB+/Stable) Windsor Financing includes three coal-fired power plants in Virginia and North Carolina. The U.S. project recently issued a $246 million senior secured term loan B due October 2017, with proceeds used to repay its 2006 senior and subordinated debt. Our ratings reflect the project's contracted cash flows and adequate coverage ratios throughout the loan tenor. Until 2017, the project faces fuel basis risk, which represents the primary operating risk, in our opinion. After that period, new PPAs will come into effect where this risk is mitigated. The project also has some refinancing risk, but we consider it to be manageable. Under our base case assumptions, we forecast average DSCRs of 2.4x between 2013 and 2017.
Nora Pickens
Nora Pickens
Renewables
Alta Wind Holdings LLC (BBB-/Stable) Generation for 2012 was below our base case by 20% due to curtailment associated with the U.S. build-out of Tehachapi Renewable Transmission Project in the first half of the year and low wind speeds during the summer, both events being one time, exceptional occurrences. Excluding those losses, generation was in line with P-90 projections and availability across Altas II-V averaged 98% in 2012. Low generation resulted in revenues about 25% below our base case, however lower-than-expected operating expenses led to cash flow available for debt service only 5% lower than projected. Rent service coverage ratio and DSCRs should remain in line with our expectations. Alte Liebe 1 Ltd. (B-/Stable; B-/Stable (SPUR)) At year-end 2012 (latest official available data), turbine availability remained in line with the average of the past two years and above the sponsor's initial target (97%)--except for Wilmersdorf-Mangelsdorf and Rakow-Gardelegen, where availability fell to about 94%. This underperformance was mainly due to gearbox failures and grid security shutdowns ordered by the utilities, but we understand that the generation loss was largely offset by insurance coverage and compensation from the utilities. However, turbine availability for the weakest wind farm (Gerdau-Plfringen) remains structurally at about 94%. All wind farm companies serviced their respective on-loan payments with cash flows from operations during 2012, given the relatively good wind conditions. Wind performance in the first three months of 2013 has been close to the Trevor J. D'Olier-Lees
Germany
Jose Abos
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historical trough in 2010, however. Breeze Finance S.A. (B/Stable; B/Stable (SPUR); C/Stable) Revenues from electricity sales in 2012 were around 5% lower than in the previous year, although Germany 14% higher than in the weakest wind year (2010). The project was able to fully cover the Class A notes debt service on April 19, 2013 payment date--without using the Class-A debt service reserve account--but the principal redemption on Class B notes (2.15 million) was fully deferred, and 1.74 million out of a 2.24 million of interest were deferred. The C-notes debt service (4.5 million) was fully deferred. While we view a relatively high likelihood that the Class A debt service reserve account will remain unused on the April debt service dates (following the high-wind winter season), we continue to see relatively high chance that the project may use the reserve on the October debt service payment dates. CE Generation LLC (BB/Negative) In January 2013, we lowered the rating on CE Gen, reflecting its deteriorating financial measures U.S. following low short-run avoided cost (SRAC) prices and an unexpected line outage that affected the project's primary cash flow provider--Salton Sea Funding Corp. With disrupted dividends at Salton Sea, CE Gen used cash on hand and supplemental distributions from its gas plant projects to meet its obligations in December 2012. The stand-alone DSCR was 0.48x, while the consolidated DSCR was 0.69x at year-end 2012. Although SRAC prices are looking up for the current year, Salton Sea won't be making any distributions to CE Gen until November 2013. This puts significant downward pressure on CE Gen's coverage, leaving no cushion to absorb higher operating costs or higher capital spending at Salton Sea; we estimate the coverage to be below 1x for 2013. We expect sponsor support to cover the next semiannual debt payment in June 2013. CE Oaxaca Cuatro S. de R.L. de C.V. (BBB-/Stable) Oaxaca IV is a 102 MW wind farm in the Isthmus region of Tehuantepec in the state of Oaxaca, Mexico 17 kilometers from the Pacific coast. The generated revenues are fully contracted under a 20-year, dollar-denominated, fixed-price take-or-pay contract for 100% of the wind farm's net energy production with the national energy regulator. The project issued $150.2 million notes that are fully amortizing. The capital structure is somewhat back loaded, as around 46% of the debt is due in the last quarter of the notes' term. Under our base-case scenario, which incorporates a one-year, P-90 (which qualifies the uncertainty related to the wind strength) 96% availability scenario, the expected minimum DSCR is 1.43x and the average is 1.45x. Moreover, during the third quarter of 2013, the project had a 100% efficiency rate and an average availability of more than 99%, compared with our expected availability of 96%. CE Oaxaca Dos S. de R.L. de C.V. (BBB-/Stable) Oaxaca II is a 102 MW wind farm in the Isthmus region of Tehuantepec in the state of Oaxaca, 17 Mexico kilometers from the Pacific coast. The generated revenues are fully contracted under a 20-year, dollar-denominated, fixed price PPA take-or-pay contract for 100% of the wind farm's net energy production with the national energy regulator. The project issued $148.5 million notes that are fully amortizing. The capital structure is somewhat back loaded, as around 46% of the debt is due in the last quarter of the notes' term. Under our base-case scenario, which incorporates a one-year, P90, (which qualifies the uncertainty related to the wind strength) 96% availability scenario, the expected minimum DSCR is 1.43x and the average is 1.45x. Moreover, during the third quarter of 2013, the project had a 100% efficiency rate and an average availability of more than 99%, compared with our expected availability of 96%. Confederated Tribes of the Warm Springs Reservation (BBB-/Negative) Operations remain consistent, with very high availability. The key risk for the project is exposure to mid-C market prices for energy sales that have been both volatile and declining over the past two years. The project entered a new hedge in May 2012 for about 25% of output although at a lower price than the previous hedge that expired in February ($29.75 versus $43.75). We expect coverage to remain below 2x. The low gas prices of the Mid-C hub region continue to weigh on the rating. Two consecutive high water years and economic sluggishness in the region had a short-term effect on prices, and new wind generation projects have come on line in the regions over the past few years, permanently increasing supply volumes. CRC Breeze Finance S.A. (Breeze Two Transaction) (C/Stable; B-/Stable) In late January 2013, a France-based independent wind power producer acquired Breeze Twos
Jose Abos
Monica Ponce
Monica Ponce
U.S.
Germany,
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Class C notes, thus taking effective control of the project. This corporate transaction does not France immediately affect the projects credit quality. Although we still lack official figures for 2012 year-end from management, from the actual performance observed in peer projects we expect wind electricity generation to have been slightly below that of 2011, although considerably above that produced in the historically weakest wind year (2010). To date, operating cash has been sufficient to cover Class A debt service in full and on time, without needing the remaining EUR10 million of cash in the senior debt service reserve account, which remains only partly funded. FirstLight Hydro Generating Co. (BB-/Stable) Performance at FirstLight Hydro is adequate in light of the PPA with FirstLight Power Resources U.S. Management lasting until 2014. The project continues its efficiency initiatives and has upgraded another unit in the Northfield Mountain plant. However, if the PPA is not renewed, we expect coverage levels to drop below 1x post-2014, as merchant revenues under our base case are significantly lower than those under the current PPA. Given the assets market value, especially the Northfield unit we believe that the parent, GDF Suez, would likely have incentives to continue its support for the project. First Wind Capital LLC (CCR: B-/Stable) First Wind receives distributions from 16 wind projects (totaling 980 MW of installed capacity) U.S. that are all operational as of December 2012. In the first quarter of 2013, with respect to these projects, First Wind received a cash grant of $115.8 million and repaid $83.2 million of the Grant Bridge Loan. Under our revised base case, which eliminated distributions from KWPII and Kahuku in 2013 (due to rejection of cash grant and trapping of distribution as a conditions of the extended term loan), the DSCR is expected to be in the range of 1x. Although coverage is weaker than we had expected, we believe the project will resolve this in 2014 and beyond, if Kahuku resumes operations and receives its expected insurance proceeds. FPL Energy American Wind LLC (BB/Negative) During fourth-quarter 2012, American Wind completed the sale of its 30 MW Montfort plant to U.S. Wisconsin Electric Power Co. for about $27 million. Under the terms of the indenture, American Wind used 90% of the sale proceeds to pay down its debt and will use the remaining 10% to pay down Wind Funding debt. We view the Montfort sale as slightly positive as the debt repayment will lower future debt service payments. Furthermore, the lower debt service payments more than offset the expected cash flow from the Montfort plant and leads to an improvement in the forecast DSCR under our base case. Despite an improvement in the amortization profile and DSCRs, the probability of lower DSCRs following the expiration of production tax credits in 2013 continues to remain high because of consistently high operating and maintenance (O&M) costs. FPL Energy National Wind LLC (BB/Negative) In 2012, production and revenues remained low at 89% of pro forma estimates, compared with U.S. 95% and 97%, respectively, in 2011. Availability remained high at 98% of pro forma estimates. For the 12 months ended February 2013 and 2012, O&M costs were about 68% and 60%, respectively, above pro forma estimates. The DSCR for the 12 months ended on the last payment date in February 2013 was just above the distribution threshold of 1.25x, compared with 1.47x for the same period in 2012. Negative variance is mainly due to very weak wind resources and high O&M costs in 2012. Furthermore, consistently higher O&M costs compared with pro forma has resulted in an increased probability of significantly lower DSCRs after the PTCs expire in 2013. FPL Energy National Wind Portfolio LLC (B/Negative) FPL National Wind Portfolio pays debt with distributions from FPL National Wind LLC. In 2012, U.S. FPL Energy National Wind achieved 89% of pro forma its production estimate compared with 95% in 2011. For the 12 months ended February 2013 and 2012, O&M costs were about 68% and 60%, respectively, above pro forma estimates. The consolidated DSCR for FPL National Wind and FPL National Wind Portfolio for the 12 months ended on the last payment date in February 2013 was below 1x at 0.96x compared with 1.13x for the same period in 2012. Negative variance is primarily due to very weak wind resources and high O&M costs in 2012. Furthermore, consistently higher O&M costs compared with pro forma has increased the risk that National Wind Portfolio will not receive distributions to pay debt service when the PTCs expire in 2013. FPL Energy Wind Funding LLC (B/Negative) Wind Funding pays debt with distributions from FPL Energy American Wind. During
Rubina Zaidi
Jeong-A Kim
Jeong-A Kim
Jeong-A Kim
Jeong-A Kim
U.S.
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fourth-quarter 2012, American Wind completed the sale of its 30 MW Montfort plant to Wisconsin Electric Power Co. for about $27 million. Under the terms of the indenture, American Wind used 90% of the sale proceeds to pay down its debt and will use the remaining 10% to pay down Wind Funding debt. We view the Montfort sale as slightly positive as the debt repayment will lower future debt service payments. Despite the improvement in the amortization profile and DSCRs, the risk that Wind Funding will not receive distributions to pay debt service following the expiration of the PTCs in 2013 remains high due to consistently higher O&M costs compared with pro forma. Harper Lake Solar Funding Corp. (BBB-/Positive) Harper Lake Solar Funding's performance has been in line with our expectations. After being U.S. exposed to SRAC pricing since May 2012, revenues fell by 39%. However, expenses also have fallen by 30%, leading to a decline in the DSCR to 2.3x in 2012 from 2.5x in 2011, but in our view still continues to be strong. The project continued to perform well operationally in 2012, with plant availability of 84.7% for SEGS VIII and 92.4% for SEGS IX. The project continues to benefit from capacity payments that continue to remain stable at above $200 per kW-year. We estimate that DSCRs could decline a little further but at least be in line with the current rating despite some volatility given the project's exposure to SRAC pricing. MEMC Electronic Materials Inc. (CCR: B+/Negative/--) A declining trend in the semiconductor and solar industries as seen in 2011 continued in 2012. In U.S. 2012, while MEMC had increased solar energy system sales with lower-than-average sales prices, its semiconductor business segment saw lower pricing on flat volume. As a part of its restructuring plan, MEMC executed settlement agreements with Evonik to settle disputes arising from early termination of two take-or-pay supply agreements and forfeited a deposit of $10.2 million and will pay Evonik a total of E70 million. The company's debt to EBITDA was 3.4x and FFO to debt was 12.1% for 2012. Salton Sea Funding Corp. (BBB-/Negative) SSFC's financial performance weakened materially in the last quarter of 2012 driven by an U.S. unanticipated and extended line outage and low SRAC contract pricing. Combined with higher-than-forecast maintenance costs, the 2012 DSCR declined to 1.27x. The impact of the outage has tightened liquidity; we expect sponsor support to cover the next semiannual debt payment in first half of 2013. For 2013, we anticipate the coverage may improve from the previous expectation of 1.67x as SRAC prices firm up. We continue to monitor the project for any higher-than-expected capital expenses that may delay the projects recovery. Terra-Gen Finance Co. LLC (CCR: B/Stable/--) For the full year ended Dec. 31, 2012, TG Finances performance was satisfactory for the current U.S. rating level. Despite a major curtailment and low wind speeds, the Alta Wind projects made distributions that exceeded our expectations mainly due to lower expenses at the projects. The projects received an average of $35.01 per MW-hour, higher than the average $30 for fiscal 2012, reflecting the marginal uptick in pricing. We expect this upward trend in pricing to continue. Cash flow available for debt service to interest in 2012 (based on unaudited financial results) was 1.36x and we expect it to average 1.36x over 2013-2017. Topaz Solar Farms LLC (BBB/Stable) The 500 MW Topaz Solar Farm is currently under construction and ahead of schedule and on U.S. budget. Through March 2013, 130 MW of the structure has already been energized--about 23% of capacity. Topaz plans to issue an incremental $250 million, representing the second tranche series B senior secured notes due 2039, which is $165 million lower than initially planned. With the reduction in leverage, we expect the DSCR to improve over the debt term, averaging 1.67x with a minimum of 1.55x.
Jeong-A Kim
Jatinder Mall
Jeong-A Kim
Natural resources/mining
DBCT Finance Pty Ltd. (BBB+/Stable) DBCT's operational and financial performance remains in line with expectations. After a slow start in 2012 when coal volumes through the terminal remained soft, throughput picked up toward the end of 2012, achieving levels above 70 million tonnes (annualized). These levels had not been seen since the floods of early 2011 that hit Queensland. Financially, though, DBCT is not affected by this fluctuating throughput given its take-or-pay contracts that ensure constant Australia Thomas Jacquot
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revenues irrespective of actual volumes and the 100% pass-through of all port operating costs, which are entirely borne by the terminals customers. Northland Resources A.B. (D/N.M.) The project is currently in default as it cannot make scheduled interest payments on its rated bonds during the current financial reconstruction. The project recently announced its plan to obtain sufficient funding to fully fund itself over the remainder of the construction period. This plan is subject to final approval by creditors and includes a plan to issue a new tranche of senior debt and subordinate the existing senior debt.
Sweden
James Hoskins
Oil and gas

Alliance Pipeline L.P. (BBB+/Stable) We believe that the partnership will continue to produce DSCRs between 1.6x and 2x, which is adequate for the rating. We remain concerned about long-term production of gas in the Western Canadian Sedimentary Basin (WCSB), but view the ability to ship natural gas liquids rich gas as an advantage that may help the pipeline system add contracts in the future. The pipeline has announced several expansions to enhance gas receipts to maintain and increase usage. The Montney Shale and Horn River Basin in Canada, as well as the Bakken Shale in North Dakota, may offset the decline in the WCSB. Buffalo Gulf Coast Terminals LLC (BB+/Stable) We believe the market for residual oil storage should remain stable in the short term, given U.S. oversupply and overseas demand. We expect debt service coverage of about 1.8x in 2013 as expansion projects and higher recontracting rates will increase revenues. However, lack of required amortization results in refinancing risk at maturity and exposure to long-term risk in a limited-scale energy subsector where market developments are more difficult to predict. U.S. Nora Pickens
U.S.
Mark Habib
California Petroleum Transport Corp. (A+/Stable) The rating on California Petroleum Transport's secured term notes reflect the project's contracted U.S. cash flow through debt maturity, which is subject only to payment risk by Chevron Transport Co. and the associated guarantee from Chevron Corp, irrespective of market rates. The rating also reflects our assessment of Chevron Transports credit quality, whose scheduled payments under the bareboat charters we expect to be sufficient to fully amortize CalPetro's loans as well as an expectation of voluntary parent support, even as the project requires drawing on its reserves to service its obligations. Excel Paralubes Funding Corp. (A-/Stable) Increasing production capacity and expectations for flat global economics have squeezed margins U.S. since mid-2012, reducing average base lube margins by almost 25% in 2012. An oversupply in Asia and Europe, as well as full inventories in the U.S., triggered steep price reductions in the Group II and III base oil. While capital spending in 2012 led to marginal improvements in yield, we expect the margins will remain stressed in 2013, which will lower DSCRs below 2012s 4.16x. Express Pipeline Partnership (BBB-/Negative) The negative outlook on the subordinated notes due in 2017 and senior notes due in 2020 reflects U.S. greater cash flow volatility following the expiration of 48% of Express' ship-or-pay contracts in March 2012. We could lower the ratings on the notes if market fundamentals result in contracts being renewed at substantially lower rates, causing the projected DSCR to fall below 1.3x to 1.5x. We could consider revising the outlook to stable if the pipeline successfully recontracts capacity such that cash flows stabilize or favorable market conditions bring projected debt service coverage above 1.5x. Maritimes & Northeast Pipeline L.P. (A/Stable) We believe that the long-term firm service agreements will support the DSCR on the C$260 million and C$180 million issues. Now that the C$260 million tranche is economically defeased, we expect debt service coverage on the other debt issue to increase significantly as amortization will increase. The backstop can support a minimum debt service coverage through 2019 greater than 1.5x. The backstop agreements will remain in force through the term of the debt, as long as the pipeline remains available and requires payment, even if the Sable Offshore Energy Project does not produce gas. Over the intermediate term, we expect debt service coverage of 1.8x or
Rubina Zaidi
Mark Habib
Nora Pickens
U.S.
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higher, which is adequate for the rating. Njord Gas Infrastructure AS (BBB+/Watch Neg) We continue to await the announcement of the outcome of the review of transportation tariffs for U.K. Gassled launched by the Ministry of Petroleum & Energy on January 15. We have been informed that the implementation date has been pushed back to July 1 from May 1. Oleoducto de Crudos Pesados (BBB/Stable) We base the project's rating on the performance guarantors' adequate creditworthiness, which Ecuador supports the issue rating. A downgrade of Repsol or any of the key guarantors below 'BBB-' could lead to a downgrade of OCP's bank loan, reflecting the credit-quality deterioration of one of its key sponsors. The project has a strong DSCR, which we expect to average 2.2x throughout the notes remaining life. The project's only additional source of liquidity is a debt-service reserve fund for the next principal and interest payments. Phoenix Park Gas Processors Ltd (A-/Negative) For 2013, we expect a continuation in weak margins as a result of sustained low natural gas liquids prices, as well as lower-than-average production volumes due to upstream maintenance activity and leaner gas. We expect 2013 DSCRs below 4x as a result, down from the 2012s ratio after capital spending of 5.7x. Pipeline Funding Co. LLC (BBB-/Stable) We base Pipeline Funding's rating on the credit quality of Citrus Corp. (not rated) and Citrus' ability to repay the $500 million term loan that secures and largely mirrors Pipeline Funding's financing. Citrus' only asset is Florida Gas Transmission. As Citrus makes interest and principal payments on the underlying term loan, it will use excess proceeds to make payments due to bondholders under Pipeline Funding's financing. For 2013, we expect Citrus' financial measures to improve as Florida Gas realizes incremental expansion cash flows, with consolidated debt to EBITDA to be in the 4.4x area.
Robin Burnett
Monica Ponce
U.S.
Mark Habib
U.S.
Michael V Grande
Portland Natural Gas Transmission System (BB+/Stable) PNGTS two long-standing Federal Energy Regulatory Commission rate cases remain unresolved, U.S. which sustains some uncertainty with respect to cash flows. If current rates are upheld, we expect financial performance to remain below our expectations for an investment-grade rating. Specifically, we forecast DSCRs in 2013 to remain tight at 1x if the rate is set at 85 cents per dekatherm (dth), 1.3x to 1.35x if 90 cents, and 1.8x to 2.0x if $1.32. Although the DSCR remains low at barely above 1x in the 85 cents per dth case, the project structure in such a case forces PNGTS to halt its distributions, which enhances the project's liquidity. The timing of a final decision by the federal regulator is unknown. QGOG Constellation S.A. (BB+/Stable) QGOG is a project developer holding company that relies on dividend distributions from several Brazil assets in Brazil's oil and gas industry. We view the quality of cash flow to Constellation as highly predictable due to its long-term contracts with Petrobras Brasileiro S.A. and moderately stable, since some projects are ramping up operations. We analyzed individually eight projects that are responsible for about 90% of the cash distribution to the issuer. During the fourth quarter of 2012, the company issued a $700 million bond at 6.25%, and used the proceeds primarily to refinance debt. We believe that cash flow quality should improve during the next two to three years after the ramp-up phase and certain loans at project level amortize. The expected consolidated cash flow to DSCR shows a minimum close to 1.0x, in the next two years, improving to more than 1.5x in 2018.
Candela Macchi
Ras Laffan Liquefied Natural Gas Co. Ltd. (II) and Ras Laffan Liquefied Natural Gas Co. Ltd. (3) (A/Stable) Continued robust crude oil prices have supported a DSCR of 7.5x as of Sept. 30, 2012 (including Qatar Karim Nassif $1.14 billion of debt obligations due in the third quarter), which was higher than the 6.6x DSCR forecast for the full year ended Dec. 31, 2012. We forecast a DSCR above a minimum of 3.9x under our base-case scenario over 2013-2016. RDS Ultra-Deepwater Ltd. (B/Positive) RDS is a wholly owned special-purpose finance subsidiary of Rubicon Drilling Services-Aluguer
Mexico
Monica Ponce
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de Equipamentos Tecnologicos, Unipessoal LDA (Rubicon), a limited liability company organized under the laws of Portugal. RDS issued the notes and made an intercompany loan to Rubicon, which agreed to purchase Centenario (formerly PetroRig III), an ultradeepwater semisubmersible drilling rig. The rig entered into a long-term charter contract with Pemex Exploracion y Produccion (Pemex E&P; unrated) a wholly owned subsidiary of Mexican oil company Petroleos Mexicanos (Pemex) through a related company, Grupo R Exploracion Marina S.A. de C.V. (GREM). RDS, Rubicon, and GREM belong to Grupo R, a group of companies that service the Mexican energy and industrial sectors. From December 2012 to January 2013, the rig was not available. Although this affected cash flow generation during those two months, the excess cash generated in previous months was enough to continue making bank loan payments and subordinated debt coupon payments. Since Feb. 25, 2013, the rig has been operating at an efficiency rate above 95%. We expect the rig to continue operating at efficiency rates above 95% and daily tariffs to remain at $495,000, allowing the project to generate enough cash flow to fully amortize its senior bank loan by 2014 and make significant prepayments on the subordinated notes from then on. Sabine Pass Liquefaction LLC (BB+/Stable) The rating on SPL reflects the recent financing to fund phase 2 of its liquefied natural gas facility, and our expectation of stable contracted cash flow from creditworthy counterparties and strong DSCRs averaging about 1.6x after completion. At the same time, several factors limit the rating, including construction risk through 2018 and weaknesses in the projects structure. We also note that the potential for pari passu expansion debt, although subject to restrictions in the common terms agreement, could present additional risk.
U.S.
Mark Habib
Sabine Pass LNG L.P. (BB+/Stable) Sabine Pass's project structure and contractual foundation have some investment-grade U.S. characteristics on a stand-alone basis. However, we cap the ratings differential between it and Cheniere Energy Partners at three-notches. The stable outlook reflects Sabines recent refinancing of its 2013 notes and significant progress on the Sabine Pass Liquefaction LLC project. These factors help to address near-term debt maturities and provide a path to improved cash flow certainty.
Mark Habib
Schahin II Finance Co. (SPV) Ltd. (BBB-/Stable) The oil and gas financing project's performance remained in line with our expectations. In August British Virgin Candela Macchi 2012, the drillship started operations as originally projected. Petrobras Brasileiro S.A. paid the Islands mobilization fee and reimbursed the import tax, which covered all the taxes the operator faced, as per the contractual agreement. The drillship's performance during the first six months exceeded expectations, reaching an average monthly uptime rate of 95% that rose to 99.7% by January 2013. As a result, the project's DSCR was 1.46x as of December 2012. The $10 million from the ramp-up debt service reserve account and $22 million of the acceptance debt service reserve account have already been released following the successful acceptance and ramp-up of the project. Under our base-case scenario and assuming an average 96% uptime rate, also known as utilization rate, we expect an average DSCR of about 1.31x and a minimum of 1.23x. Schahin Oil & Gas Ltd. (BB+/Stable) In early 2013, we assigned our 'BB+' ratings to Schahin Oil & Gas Ltd. The company planned to Brazil issue a seven-year bond of up to $685 million in first-quarter 2013 to refinance existing debt and extend its maturity schedule. However, market conditions led the company to postpone the issuance for a couple of months, which we expect will occur in the short term. We view Schahin as a project developer and base our ratings on its ability to meet financial obligations at the holding level from dividend distributions from its operating subsidiaries. The credit rating reflects the total quality of the residual distributions from the company's projects. We have made this analytical judgment based on Schahin's segregation of assets into special purpose entities and its extensive use of nonrecourse project financing in most of these. Solveig Gas Norway AS (BBB+/Watch Neg) We continue to await the announcement of the outcome of the review of transportation tariffs for U.K. Gassled launched by the Ministry of Petroleum & Energy on January 15. We have been informed that the implementation date has been pushed back to July 1 from May 1. Sweetwater Investors LLC (BBB-/Positive)
Candela Macchi
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The rating reflects Sweetwater's stand-alone credit quality and the Anadarko Petroleum Corp. U.S. rating, which caps the project rating. The project relies on royalty payments that have outperformed the original 2004 projections by 28%. We expect royalty payments to continue to drive strong coverage levels due to strong trona pricing and production volumes for trona and coal that will meet or exceed projected volumes. Although the project's royalty revenue is subject to price and volume risk, it can survive a downturn significantly below 10-year historical lows. It is also insulated from short-term volatility by advance royalty payments based on previous year production volumes. Windsor Petroleum Transport Corp. (CCC+/Negative) The projects Pioneer vessel has exhausted its restricted cash and is drawing on reserves of other U.S. vessels to service its debt. While charters on Purpose and Pride have been extended until 2014, BP has provided irrevocable notice of termination for the charter on Progress, which expires in 2014. We estimate that the project requires a breakeven charter rate that is significantly above the market to service its debt until maturity. Barring a sharp increase in charter rates or asset values, we believe the project is likely to exhaust all of its restricted cash by the summer of 2014 when it could possibly default.
Rubina Zaidi
Rubina Zaidi
Public finance initiative/real estate

(Chelmsford Hospital) BY Chelmer PLC (BBB-/Stable (insured); BBB-/Stable (SPUR)) The hospital continues to operate well. Reported financial deductions over the past three months U.K. have remained low, with a minimal level of service failure points (SFP). Construction defects, including rectification of expansion joints across the hospital, have now been resolved. Planned maintenance tasks are reported to have been completed as scheduled. Financial performance continues to be in line with our expectations, but with relatively weak annual DSCRs. Alpha Schools (Highland) Project PLC (BBB/Positive (insured); BBB/Positive (SPUR)) The project, to build and maintain 11 new schools in the Scottish Highlands, continues to deliver U.K. a relatively stable operational performance with a low level of performance deductions reported. As the facilities have only a limited operating history since construction completion, some "teething issues" have been reported. However, operational services are stabilizing toward steady-state delivery and planned life-cycle works have been relatively minor to date. The overall relationship between the parties is improving. Financial performance for the year was ahead of budget and reported cash balances are healthy. Ancora (OAHS) Pty Ltd. (AA-/Stable (insured); BBB/Stable (SPUR)) The recent trend of improved performance on site is continuing, with abatement averaging under Australia 0.2% over the past nine months. In addition, the improvement in service delivery has resulted in a significant reduction in the volatility of the financial penalties, with the highest monthly deduction at 0.35% over the period. We view this improvement, together with the continued supportive relationship between all the project stakeholders as positive signs that this project is now running as a partnership beneficial to all involved. Ancora (RCH) Pty Ltd. (BBB/Stable; BB+/Stable) Construction is progressing on time and budget, with completion of the demolition activities in early 2013. Completion remains targeted for late 2014. The facilities management service provider for the newly built hospital, which started in late 2011, is performing in line with expectations, and we continue to expect that there will be no or nominal financial penalties. We continue to believe that a project strength is the very cooperative relationship between all the project stakeholders, as well as the proactive management by the project company of the relationship between the private contractors and the hospital. James Hoskins
Manuel Dusina
Thomas Jacquot
Australia
Thomas Jacquot
Aspire Defence Finance PLC (BBB+/Positive (insured); BBB+/Positive (SPUR)) Good progress continues to be made on the competed price works, with no material issues or U.K. delays reported. In our opinion, interim services are being executed successfully with negligible deductions, which, in any case, have been passed through to the relevant subcontractors in full. Aspire continues to progress investigations and remedial works in relation to a number of heating and hot water failures that occurred over the past few years. Positively, deductions related to heating and hot water have remained limited. Aspire Defense Finance continues to maintain a strong relationship with the Ministry of Defence and financial performance remains in line with expectations.
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Capital Hospitals (Issuer) PLC (Barts) (AA-/Stable (insured); BBB-/Stable (SPUR)) Construction performance is, in our view, satisfactory for a complex project of this nature. U.K. Construction works for Phase 2 are currently slightly ahead of the scheduled completion in 2014. We note a material improvement in the relationship between St. Bartholomews Hospital and The Barts Health NHS Trust. In our view, the catalyst for the change has been the retrospective investigation exercise That has brought the project and the Trust closer and has resulted in improved cooperation. A Head of Terms (HoT), wrapping all commercial issues outstanding, was signed in March 2013, with the aim to convert it into a deed in June 2013. Within the HoT there is also an agreement for the soft facilities management (FM) to be brought in house by the Trust by 2017, adopting a phased approach. In our view, this will reduce the risks in the ramp-up and operation phases. Catalyst Healthcare (Manchester) Financing PLC (BB+/Positive (insured); BB+/Positive (SPUR)) Financials are robust, especially now that retail price index levels favor the project, but the risk of U.K. future volatility remains. Overall, fixing of construction defects is going well apart from a couple of issues, for which, we understand, an agreement has now been reached regarding the majority of the historical unavailability deductions between Lend Lease Project Management & Construction and the Central Manchester and Manchester Childrens University Hospitals National Health Service Trust. The overall quality of services is perceived as improved, despite some peaks, although always within threshold. The draft documents to amend the SFPs trigger have been issued to funders and Sodexo. Legal advice is awaited. We believe the current state of operations is reinforcing the satisfactory working relationships between the parties and the project's financial performance, and stabilizing the project. Catalyst Healthcare (Romford) Financing PLC (AA-/Stable (insured); BBB-/Stable (SPUR)) The project continues to deliver strong operational performance with no deductions since U.K. October 2008 despite the operational and financial challenges facing the Barking, Havering and Redbridge University Hospitals NHS Trust. The Trust has confirmed that it is working with the project, Sodexo, and Siemens on cost-saving initiatives to help reduce the Trust's deficit. More than one-half of the clinical recommendations made in 2011 by the Care Quality Commission, a government health inspector, have been dealt with, while others are progressing well. Although the Trust has made significant improvements across maternity and radiology services, it still has serious concerns over the accident and emergency department but acknowledges recent positive results. The DSCRs as of September 2012 are 1.29x on average and 1.23x occurring in 2036 and 2037. However, the project still remains exposed to future variations in the retail price index. Catalyst Higher Education (Sheffield) PLC (AA-/Stable (insured); BBB/Negative (SPUR)) As reported in December, the project suffered an unexpected drop in occupancy to around 90% U.K. for the 2012-2013 academic year due to fewer first-year students attending the university. Operational performance has remained strong with limited deductions being incurred and student surveys reporting favorably on the quality of the accommodations. As a result, financial performance is currently slightly lower than previously forecast, with an average DSCR of 1.16x currently forecast for 2013. Central Nottinghamshire Hospitals PLC (AA-/Stable (insured); BBB/Stable (SPUR)) Following the Sherwood Forest Hospitals National Health Service Foundation Trust posting a U.K. deficit of 5.9 million in first quarter of 2012 and failing to deliver 10 million in savings along with concerns over the historical clinical tests related to breast cancer, Monitor has appointed an interim chair and chief executive for the Trust. This intervention aims to review the quality and safety of the Trusts services and ensure robustness of its governance, which we believe, will not affect operations or payments to the private finance initiative hospital. A deed for postponement of the first market testing of the soft facilities management (FM) services has been agreed moving the date for all soft FM services to April 2017 except waste services, which would move to November 2014. The DSCR, without interest income, is 1.14x minimum in March 2025 and the average is 1.16x. CHS (CAMH) Partnership (A-/Stable) CHS was selected to design, build, finance, and operate Phase 1B of Centre for Addiction and Canada Mental Healths redevelopment plan, which includes decommissioning and demolishing an existing building and substation, as well as three new mental health and addiction buildings, with
Manuel Dusina
Manuel Dusina
Mike Wilkins
James Hoskins
Mike Wilkins
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a combined total area of about 540,000 square feet in Toronto. The project achieved its scheduled substantial completion on April 30, 2012. Final commissioning was completed on May 31, 2012. The new facilities have been operating since May 2012 and they have generally performed in line with expectations without incurring any material performance deductions. Consort Healthcare (Birmingham) Funding PLC (BBB-/Stable (insured); BBB-/Stable (SPUR)) The project achieved successful construction completion on time and within budget on Aug. 17, U.K. 2012. Subsequent to the settlement agreement, finalized in February 2011, which resolved the historical accumulation of an excessive number of SFPs in 2010, operating performance has improved and the accumulation of SFPs has also stabilized. The projects relations with the Trust are also stabilizing, mainly due to better management of, and response rate from, the hard facilities management contractor and the help desk. The latest model dated March 2012 shows a minimum debt service coverage of 1.2x occurring in three periods between 2027 and 2028 and an average of 1.23x. Without interest income, the minimum annual DSCR is 1.13x occurring in September 2028, and the average is 1.19x. Consort Healthcare (Mid Yorkshire) Funding PLC (BBB/Stable (insured); BBB/Stable (SPUR)) The project is fully operational, although the levels of SFPs and deductions being raised were still U.K. subject to unexpected fluctuations as service delivery matures. The SFP level show a significant improvement on the level reported in the previous period. In March 2012, the Trust appointed an interim chief executive officer. Since then, a partnering-style relationship appears to have developed and improved. Consort Healthcare's financial performance is in line with our forecast. Consort Healthcare (Salford) PLC (BBB+/Stable (insured); BBB+/Stable (SPUR)) Following completion of construction in August 2012, the project is now receiving 100% of the U.K. Unitary Charge. No major defects have been reported and minor defects are promptly addressed by the building contractor. The Hard FM services provision continues to be strong, with low levels of SFPs and deductions. Annual DSCRs, as per our criteria, in the new operational model of 1.24x minimum and 1.27x average, remain strong in our view, when compared with peers. We continue to monitor the Trusts governance and financial performance. Consort Healthcare (Tameside) PLC (BBB+/Stable (insured); BBB+/Stable (SPUR)) The project continues to operate in line with our expectations, with limited deductions and no U.K. material latent defects reported. However, currently, the major risk to the project's rating is the potential deterioration in credit quality of the Tameside Hospital National Health Service Foundation Trust, the issuer's main revenue source, given the financial and governance concerns that various regulatory bodies have raised. This may constrain the underlying rating on the project if the Trust fails to resolve these concerns in a timely manner. However, the Trust has implemented a recovery plan and is improving its financial position. In our view, despite robust DSCRs, without interest income, of 1.27x minimum and 1.30x average, a positive rating action is limited while the credit quality of the project's main revenue source--the Trust--remains under pressure. Coventry & Rugby Hospital Co. PLC (The) (BB+/Stable (insured); BB+/Stable (SPUR)) The project reports that the Vinci Facilities continue to make progress in terms of hard FM U.K. service quality improvements, with cumulative SFPs for the six months to February 2013 showing a declining trend. ISS Facility Services, however, has encountered issues with the Trust and has reported the opposite trend with respect to soft FM services. As a consequence, the project and the Trust have initiated an independent audit, and are awaiting the results. CSS (FSCC) Partnership (A-/Stable) CSS (FSCC) Partnership was selected to design, build, finance, and maintain the Forensic Canada Services and Coroners Complex in Toronto. The project achieved substantial completion on Feb. 15, 2013, a delay of two weeks compared with the scheduled substantial completion date of Jan. 31, 2013. Liquidated damages (provided by the contractor) will be required from Jan. 31, 2013 to Feb. 15, 2013. The project achieved total substantial completion on April 15, 2013 (excluded commissioning of the lab). According to its latest report, the lenders technical advisor believes the final completion date of June 7, 2013 is achievable. Discovery Education PLC (BBB/Stable (insured); BBB/Stable (SPUR)) The project continues to operate strongly with a low level of performance and availability
Mike Wilkins
Manuel Dusina
James Hoskins
James Hoskins
Robin Burnett
Valiant Ip
U.K.
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deductions. The construction contractor has continued to undertake works to ensure that shower and toilet pods achieve the minimum contracted temperatures in winter. The project reports that strong relationships have been maintained between the parties and the technical advisor also reports no significant issues in its most recent semiannual report. Financial performance remains in line with our expectations. Exchequer Partnership (No. 2) PLC (AA-/Stable; A-/Stable (SPUR)) The project, covering the refurbishment of government offices in Whitehall, London, has U.K. maintained its stable operating performance since 2004. For the year to December 2012, there were very minimal financial deductions applied to Hard Services which we do not consider material for the rating. The forward-looking annual DSCR is a minimum 1.18x in December 2013, with a 1.45x average, per the December 2012 model. Fideicomiso 00874 (Sarre y Papagos) (mxAA/Stable) The sponsors (Sarre and Papagos), through Trust 00874, raised additional financing for the Mexico projects by issuing 22-year MXN900 million in subordinated secured debt certificates denominated in inflation protected units (UDIS), which were placed in local capital markets. Both social infrastructure projects for the public security ministry began operations in fourth-quarter 2012 and the ministry has started making payments. We expect the project to report an average DSCR of 2.8x and a minimum of 1.8x. Fideicomiso Sarre y Papagos (mxAAA/Stable) Both social infrastructure projects for the public security ministry began operations during the Mexico fourth quarter of 2012, and the ministry has distributed planned payments. The project will begin to amortize debt in second-quarter 2013. We expect the project to report an average DSCR of 1.56x and a minimum of 1.27x. Green Timbers L.P. (A-/Stable) The project entails designing, building, financing, maintaining, and operating the new Royal Canadian Mounted Police E divisional headquarters in Surrey, B.C. The project in our opinion is less complicated than most of the social infrastructure projects in recent years. Green Timbers achieved substantial completion in December 2012 and started operations. ETDE Facility Management Canada Ltd. will undertake most of FM and life-cycle services under a fixed-price contract.
Mike Wilkins
Monica Ponce
Monica Ponce
Canada
Yousaf Siddique
Healthcare Support (Newcastle) Finance PLC (BB+/Watch Neg (insured); BB+/Watch Neg (SPUR)) The final phase of major construction, a clinical office block, has still not formally been completed U.K. due to continuing disagreements with the Newcastle-Upon-Tyne Hospitals National Health Service (NHS) Foundation Trust (the Trust) over final specifications. As a result, the construction contractor has been incurring liquidated damages since the end of May 2012. The project has passed on the responsibility to resolve the situation directly to the contractor, and discussions continue. Operationally, the Trust and the project remain in dispute over the accrual of SFPs and the issuance of two warning notices. Healthcare Support (North Staffs) Finance PLC (BBB-/Positive (insured); BBB-(SPUR)/Positive) Construction was completed on schedule in June 2012, marking a 100% step-up to the unitary U.K. payment. Although Sodexo has generally performed well, it recently reported a significant amount of deductions due to problems in its cleaning and portering services, resulting in the Trust issuing a warning notice in April 2012. If this issue is not resolved, it may lead to a deterioration in the so-far good working relationship between the Trust and Sodexo. Sodexo's performance has improved, with performance deductions having returned to a level comfortably below their respective thresholds. The Trust has disclosed a deterioration in its finances that shows a shift from an expected surplus of 2 million to an approximately 24 million deficit by the end of financial year 2012-2013. However, this is not yet constraining the issue rating. Hospital Infrastructure Partners (NOH) Partnership (A-/Stable) The project is an almost 1.8 million-square-foot hospital in Oakville, Ont. Construction began in Canada August 2011, with the expected substantial completion date of July 2015. The project has EllisDon Corp. and Carillion Construction Inc., one of the largest construction contractors of health care projects, as the design-build joint venture, facilities management, and lifecycle service company partners. Once complete, the facility will include ambulatory care services, inpatient
Robin Burnett
Manuel Dusina
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units, and clinical, diagnostic, and therapeutic services. Construction is progressing generally in line with the baseline schedule and we expect it to be complete by the substantial completion date. InspirED Education (South Lanarkshire) PLC (BBB-/Stable (insured); BBB-/Stable (SPUR)) The project schools have continued to perform well with limited deduction levels. Inspired has continued to operate in line with its budgets for running costs and reactive maintenance. Relationships are reported by all parties to be strong with no major issues reported at present. Financial performance remains in line with our current forecast.
U.K.
James Hoskins
Integrated Accommodation Services PLC (AA-/Stable (insured); A/Stable (SPUR)) The project, which finances new accommodation facilities at the U.K. Government U.K. Communications Headquarters, continues to deliver a stable operating performance with minimal availability and performance deductions in 2012. Despite high occupancy levels, the services were delivered at 99.9% of requirement. The construction contractor, CCL, continues to fix the latent defects that have been identified in the past three years at its own cost. Positively, none of these defects have affected operations. According to the financial model updated in March 2013, the contractual minimum annual DSCR is 1.18x in March 2014, with an average of 1.42x. Integrated Team Solutions SJHC Partnership (A-/Stable) Construction at the St. Thomas site is nearing completion, with 97% of total costs claimed as of Canada March 21, 2013. Construction at the London site is progressing well. EllisDon has nearly completed the facility's superstructure. Poor weather caused an earlier schedule delay. However, EllisDon implemented a schedule mitigation plan that included work resequencing and additional shifts to make up for lost time. The London facility has incurred 53% of construction costs as of March 21, 2013. This is less than the 72% envisioned at this point in the financial model. The lenders technical advisor expects EllisDon to reach substantial completion by the committed scheduled substantial completion date in October 2014. Keele Residential Funding PLC (AA-/Stable (insured); A-/Positive (SPUR)) The project continues to perform strongly based on the support of the university and a robust U.K. contractual foundation. However, there remains some uncertainty over the Hawthorns residence halls replacement strategy, the effect of recent higher education reforms, and the changes to U.K. immigration policy, which may also act lower overseas student demand. However, with high occupancy and only 2,587 rooms out of the 3,244 billable rooms required to achieve the base case rental, the project retains a significant cushion to withstand any decrease in demand that may be expected as a result of increased rents or higher fees. Financial performance continues to be strong with contractual annual DSCRs of 1.43x minimum and 1.66x average (minimum 1.36x and average 1.60x without interest income). NewHospitals (St. Helens and Knowsley) Finance PLC (AA-/Stable (insured); BBB-/Stable (SPUR)) There are no significant issues to report. The project reports the hospital site commissioning U.K. completion certificate was issued on Feb. 8, 2013. At the Whiston site by the end of February, 81% of the post-handover matters and defect notice remedial works were complete, 15% were in progress, and 4% had yet to start on site. Penalties and SFPs remain low compared with contractual thresholds across all services. Octagon Healthcare Funding PLC (AA-/Stable (insured); BB+/Stable (SPUR)) The project continues to operate well, in our view. The project reports occupancy remains very U.K. high. Service levels, however, remain high, with no deductions reported since our last review. Belfius Bank (the successor to Dexia Bank Belgium) remains the inflation swap counterparty, with all parties having now signed an amendment to the documentation requiring replacement only if the bank's ratings fall to BBB. Financially, operational cash flow for the year to Dec 31, 2012, was above budget due mainly to lower life-cycle spending. Total dividends for the year, however, were higher than budget, reflecting the positive variance in cash flows and actual cash balances. Peterborough (Progress Health) PLC (BBB-/Stable (insured); BBB-/Stable (SPUR)) We understand that on April 11, 2013, John Laing Infrastructure Fund completed the acquisition U.K. of a 30% stake in Peterborough (Progress Health) from Brookfield Infrastructure Partners. The sale by Brookfield Infrastructure Partners of its investment in the project does not affect the services provided by Brookfield Services on site and existing arrangements will continue. The full
Mike Wilkins
Paul Judson
Mike Wilkins
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unitary payment continues to be made on time by the Trusts. SFPs have stabilized at levels well below the thresholds that could trigger warning notices and far below the termination threshold. The few performance deductions have been fully passed through to the respective subcontractors, leaving the project unaffected. Plenary Health Bridgepoint L.P. (A/Stable) Plenary Health Bridgepoint was selected to design and build a new facility to replace the obsolete Canada and deteriorating Bridgepoint Hospital. Construction began in the fall of 2009 and the project achieved substantial completion on March 3, 2013. Demolition of the Toronto jail and the old facility are scheduled to be completed by June 20, 2014. We expect the transition to operation will be seamless. Plenary Health Care Partnerships Humber L.P. (A/Stable) Construction of the River Regional Hospitals new facility began in September 2011 and is scheduled for substantial completion in May 2015. The project design is more challenging than most other recent public-private-partnership hospital deals as the authorities require that the hospital be technologically advanced with a lean design. Very experienced counterparties during construction and operations (i.e., PCL Constructors Canada Inc. and Johnson Controls L.P., respectively) support the rating. We expect that the construction can be completed by the substantial completion date.
Valiant Ip
Canada
Yousaf Siddique
Plenary Health Hamilton L.P. (A/Stable) The project involves designing, building, financing, maintaining, and operating a mental health Canada and addiction inpatient hospital for St. Joseph's Healthcare Hamilton. The project has a very experienced team: PCL Constructors Canada Inc., one of Canada's largest contractors, as design-build contractor; and Honeywell Ltd., an experienced operator of health care facilities in Canada, as FM service and lifecycle provider. Since its start in December 2010, construction is generally on schedule. We expect that construction will be complete by the scheduled substantial completion of December 2013. Plenary Health Niagara L.P. (A/Stable) Construction of the new 990,000 square feet hospital began in June 2009. The new facility achieved substantial completion on Nov. 26, 2012 and operations have started. The remaining minor construction deficiencies are being rectified and PCL is currently working towards final completion.
Yousaf Siddique
Canada
Valiant Ip
Plenary Properties LTAP L.P. (A/Stable) Plenary Properties LTAP has been selected to design, build, finance, operate, maintain, and Canada provide the IT infrastructure and services for the countrys national cryptology agency, Communications Security Establishment Canada, in Ottawa, Ont. This is a two-phase construction project; the first phase, the construction of an approximately 6,000 square meter medium-term accommodation project built by a third party, is complete and Honeywell has already assumed operational responsibilities. Construction of the second phase is underway and the lenders technical advisor reports that the project is on schedule per the contractual substantial completion date of July 31, 2014. Project participants are all very experienced in their respective areas; to date, no material issues have been reported. Moreover, there have been no operational issues related to MTAP. The off-taker is the Government of Canada as represented by Defence Construction (1951) Ltd. Plenary Properties NDC GP (BBB/Stable; BB/Stable) Construction of the data center for the Ontario Ministry of Government Services achieved Canada substantial completion on schedule in March 2010 and final completion in September 2011. We believe that the transition to the operating phase was smooth and so far operations have been stable with operator Johnson Controls. Upon substantial completion, the project received a payment of C$50 million, and repaid in full the senior short-term bonds of about C$29 million. To date, there have not been any operational issues resulting in major deductions and failure points. RMPA Services PLC (BBB-/Stable (insured); BBB-/Stable (SPUR)) The project has continued to deliver strong operational performance with minimal deductions. U.K. The technical advisor continues to note that life-cycle works are being well delivered and that the buildings are in very good condition. Life-cycle works for the 2012/2013 year are expected to be
Jennifer Love
Jennifer Love
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slightly under budget. Despite a number of meetings during the latter part of 2012, we understand that there has not yet been any agreement with Her Majesty's Revenue and Customs on the project's tax liabilities. Positively, the financial model includes the currently agreed tax liabilities without taking into account any reduction that RMPA is seeking. Services Support (Manchester) Ltd. (BBB-/Stable) The project has continued to perform in line with expectations with minimal deductions and stable operations. Relations with concession grantor GMPA remain good despite increasing pressure on the authority to implement cost savings as part of a restructuring program. This program along with the findings of the Deloitte strategic review could lead to some operational challenges in the future, including increased capital and maintenance works over the next two years. Life-cycle spending continues to be under budget. The technical adviser, however, regards the lifecycle provisions as adequate considering the buildings current condition. As per the September 2012 model, the annual DSCR is 1.29x on average, 1.14x minimum, and 1.13x minimum without interest income.
U.K.
Mike Wilkins
SNC-Lavalin Innisfree McGill Finance Inc. (A-/Negative) Design and construction of an integrated hospital complex to replace the McGill University Canada Health Centre is a relatively complex project, in our opinion, given its size compared with other Canadian public-private partnership hospitals we rate. A very experienced project team, including a highly rated design-build contractor in SNC-Lavalin Services Ltd.; SNC-Lavalin Group Inc. (60%), and Innisfree Ltd. (40%) as equity sponsors; and highly capable operators in SNC-Lavalin Operations and Maintenance Inc. and Johnson Controls L.P., mitigate this. The lender's technical advisor reports that since financial close, design work has been proceeding slower than planned, but is sufficient to support the construction schedule. We revised the outlook on the project to negative on Nov. 5, 2012, reflecting the project's dependency on SNC-Lavalin Group as the main counterparty and guarantor for the project. Our outlook also reflects the risk that as a result of the continued material delay, the construction may not be completed in accordance with specifications. The lenders technical advisor notes that some progress has been made in reducing the delay in construction as of the end of 2012, as additional resources have been added to catch up. The consortium has filed a remedial plan and is currently tracking that plan's schedule. The Hospital Co. (Swindon & Marlborough) Ltd. (BBB+(insured)/Stable, BBB+(SPUR)/Stable) The project maintains stable operating performance and benefits from high occupancy levels U.K. leading to a suspension of the performance regime. The lender's technical advisor notes that pin-holing of pipework continues and views it as "high risk" due to the potential for further leaks to disrupt hospital operations. This is on the priority list for the project and Carillion, and the project, after consulting its legal advisors, believes that the ultimate cost liability will not be borne by them. The unavailability deductions for 2012 end and beginning of 2013 continue to be immaterial. The interface and relationships between all the parties continues to be strong. The financial profile remains aggressive, with a ratio of senior debt to equity at 90%, and the base-case annual DSCR with a minimum of 1.13x and an average of 1.34x (1.12x minimum and 1.30x average when calculated without interest income). Transform Schools (North Lanarkshire) Funding PLC (BBB(insured) /Stable, BBB(SPUR)/Stable) The project has continued to operate strongly with a low level of deductions. As the schools are U.K. all recently built, there is only minimal planned lifecycle spending over the next five years. The overall projected spending over the concession remains unchanged at 33.1 million. Following the most recent annual condition survey, spending in the current five-year lifecycle plan is lower than in the original budget. According to the technical advisor, this reflects deferred works rather than savings, partially as a result of some work, such as routine repainting, being performed directly by janitorial staff as required. The project continues to deliver financial performance in line with our expectations. Transportation Infrastructure Properties LLC (BBB-/Stable) Transportation Infrastructure Properties (TrIPs) performance for fiscal 2012 was in line with management's budget, with few changes in the portfolio. Building occupancy was 86% as expected in 2012. For 2012, the top five tenants accounted for a concentrated 54% of the portfolio's total rent. Bondholders' exposure to lease-renewal risk remains at the same level, with tenant leases ranging from 1.1 years to 13.6 years. Standard & Poor's long-term expectations for
Mario Angastiniotis
Mike Wilkins
James Hoskins
U.S.
Jodi E. Hecht
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the TrIPs portfolio remain unchanged and assume the portfolio reaches a stabilized occupancy level by 2017, two years after management's forecast. UPP Bond 1 Issuer PLC (A-/Stable) In March 2013, UPP Bond 1 Issuer PLC issued 307.1 million senior secured fixed-rate notes due U.K. Feb. 28, 2040 (Class A1), and 75 million senior secured index-linked notes due Aug. 31, 2047 (Class A2), with the notes proceeds being on-lent to six separate special-purpose vehicles (the asset companies) currently operating accommodation under individual long-term concession agreements for six U.K. universities. The asset companies used the loans to repay the outstanding short-term project loans and terminate the swaps in place. The notes will be repaid from rental income on student accommodations. Year-to-date, all asset companies are operating in line with our baseline forecast, with demand at least in line with 2012 and rent indexation slightly above our base case expectations. Walsall Hospital Co. PLC (The) (AA-(insured)/Stable; BBB(SPUR)/Stable) Walsall Hospital continues to operate in line with our expectations, with limited deductions and U.K. no material latent defects reported. Skanska Facilities Services has now assumed full responsibility for the lifecycle planning for the new building and the retained estate. Importantly, the project is responsible for delivering lifecycle works in new-build areas only. As a result, the five-year maintenance plans have been updated to reflect the increased scope and the results of a condition survey that Skanska recently submitted to the Trust. The technical advisor notes no issues with lifecycle planning or delivery to date. Financial performance continues to be in line with our expectations.
Jose Abos
James Hoskins
Leisure and gaming

Austin Convention Center Enterprises Inc. (BB+/Positive) The continued turnaround in the Austin market resulted in solid operating performance and U.S. measures for 2012. A 10.3% increase in revenue per available room (RevPAR) from 2011 led to a 53% operating margin. For 2012, the series A DSCR and the combined series A and B DSCR were 2.71x and 1.67x, respectively. For 2013, we expect the hotel to benefit from the legislature being in session in Austin and strong attendance at annual events like the Formula 1 auto racing, SXSW festival, and the Austin Food & Wine festival. Austin has had an overall 9.6% increase in demand over the past two years, with only 3.4% increase in supply, making the hotel somewhat susceptible to the threat of new entrants in the market. Baltimore Hotel Corp. (BB+/Stable; BB-/Stable) Improved occupancy levels contributed to a 1.1% increase in RevPAR as compared with the U.S. competitive set, which declined 2.9%. As we expected, the 2012 DSCR for the senior debt declined to 1.57x and for all debt to 1.28x, including city support, reflecting the start of principal repayments. Baltimore's lodging market remains subdued, although some growth has been seen in future group bookings. We expect hotel operating performance and measures to be fairly static in 2013 unless the market demonstrates stronger growth. Broadcast Australia Finance Pty Ltd. (BBB/Negative) The negative outlook on Broadcast Australias senior secured debt reflects our expectation of low Australia financial measures relative to the BBB rating over the next year or so, and a risk of further underperformance against forecasts. As of March 31, 2013, operational and financial performance has tracked in line with forecasts, and adequate headroom above financial covenants is being maintained. The number of contracted digital television services has increased slightly, and the roll-out of those services is nearing completion. Contract renewal is a key risk for the company. The next major contract expiry is an ABC Radio contract in 2015. If this contract is not renewed, or not renewed at least at the current levels, then financial measures could erode and, if materially lower, the loan life coverage ratio covenant may be breached. Our forecasts assume that this contract will be renewed before maturity. Brooklyn Events Center LLC (BBB-/Stable) Barclays Arena has performed in line with budget after opening on Sept. 28, 2012. Attendance numbers for basketball and non-basketball events have been in line with expectations. The arena also entered into an agreement with the New York Islanders hockey team, which will see the team play substantially all its home games in the arena from the 2014-2015 season at the latest. We expect the DSCR to average close to 1.4x on a consolidated basis before the Islanders arrive. Jayne M. Ross
Jayne M. Ross
Phil Grundy
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Darwin Cove Convention Centre Pty Ltd. (A-/Stable) The Darwin Cove Convention Centre project has an established track record of strong operating Australia performance. There have been no abatements, and AMP Capital Investors reports that the center operator and the facilities manager continue to have an efficient and supportive working relationship. Territory Incentive Payments (TIP) related to the centers utilization have underpinned financial measures. We forecast the DSCR, calculated excluding income from interest and TIPs, to average about 1.2x over the medium term, before weakening around 2020. This is a relatively straightforward, availability-based project for which the obligations and risks associated with FM are passed through to Honeywell Ltd. The ratings on the project debt benefit considerably from the guarantee of Honeywell by its parent, Honeywell International Ltd. Denver Convention Center Hotel Authority (BBB-/Stable) Although in line with budget, the hotel underperformed its competitive set in 2012. The hotel saw U.S. a 0.4% decline in RevPAR as compared with 5.7% growth across the Denver market. With last year's 6.3% growth in downtown room supply, we anticipated some reduction in RevPAR. The project's DSCR for 2012 was 1.57x, including hotel net operating income and the city contribution, in line with our expectations. Although we expect hotel performance to remain stable in 2013, we do expect some effect on transient room rates as the hotel faces increasing competition. Downtown Phoenix Hotel Corp. (BB+/Stable) The hotel has outperformed its competitors and the market during the past 12 months, but the U.S. project continues its extended ramp-up period. In 2012, the hotel's RevPAR grew by 7.2% to $84.83, exceeding the growth rate of 5.5% for the competitive set and 1.6% for the Phoenix market. Occupancy improved by 6.6% to 53.9%, slightly above the budget target of 53%. The average daily rate increased modesty, but was 3.1% below the budget. As a result, RevPAR was 1.4% below its budget target. As expected, the DSCR declined to 1.15x in 2012 from 1.29x for 2011, as debt service increased from $7.8 million to $9.3 million in 2012. We estimate that the project's senior debt service coverage will remain in the 1.1x to 1.2x range for the next two years. This is low for the rating, but strong liquidity (reserves cover more than three and one-half years of senior debt service) provides a cushion during the extended ramp-up period. Lombard Public Facilities Corp. (CCC/Negative) Our forecast indicates the project will exhaust its liquidity for the series 2005A-2 bonds by the U.S. January 2015 debt service payment date and the series 2005B bonds by the January 2014 debt service payment date. Without debt restructuring or external support, we believe payment default is inevitable on or before the January 2015 payment date. Because of weak economic conditions and the hotel's slow ramp-up, the project has been operating with a DSCR of less than 1x since 2007. Following the January 2013 debt service payment, the series A debt service reserve fund has about $5.4 million and the series B debt service reserve fund has about $875,000. We would lower the rating on the bonds by end of June 2013 if the Village has not appropriated any money to replenish the series 2005B bonds reserve fund due to certain events of default in the indenture of trust links the series 2005B bonds to the series 2005A-2 bonds. Louisville Arena Authority Inc. (AA-/Stable (insured); BBB-/Negative) In December 2012, we revised our outlook on Louisville Arena Authority's bonds to negative from stable, reflecting our concerns about the project's reliance on volatile tax increment financing (TIF) payments and uncertainty about operating costs and the performance of the new operator. The project relies on three sources of revenue--arena revenues, payments from the city of Louisville, and TIF revenues. Revenue for the arena has been positive for the eight months ended February 2013 and we estimate that the arena's profits to total $1.1 million for the 12 months ending June 2013. We expect operations to stabilize and the project's DSCR to average 1.48x from 2013 through 2039, although we expect it to be weak in the short term. MPC Funding Ltd. (AA-/Stable (insured); A/Stable (SPUR)) Performance on the Melbourne Convention and Exhibition Centre continues to remain in line with our expectations, both from operational and financial perspectives. Although the project incurred recently a financial penalty relating to a lift entrapment, this financial abatement was entirely passed through to the operator; we view this as a one-time occurrence and not symptomatic of an underlying performance issue.
Phil Grundy
Jayne M. Ross
Jayne M. Ross
Jayne M. Ross
U.S.
Jayne M. Ross
Australia
Thomas Jacquot
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Overland Park Convention Center Hotel (BB+/Stable) The hotel's performance dipped in 2012; although occupancy and average daily rate were up U.S. from 2011 levels, both missed their budget targets. While management expected 2012 to be a tough year, the hotel's extended renovation carried out in mid-2012 lasted six months and caused 50 to 60 rooms to be unavailable at a time. The hotel posted a tepid 2.2% RevPAR growth as compared with 7.3% growth of the competitive set. However, during the first quarter of 2013, there was a substantial improvement in occupancy levels and average daily rates. Also, group booking pace is up for the current year. With new corporations leasing space in the Sprint Campus and increasing share of transient business in the hotel mix, we expect an increase in room-nights and operating performance in 2013. Queens Ballpark Co. LLC (BB/Negative) Major League Baseball's New York Mets poor performance led to a fourth straight decline in U.S. annual attendance, to 2.2 million in 2012 since moving to the new ballpark. The 2012 attendance is lower than the 20-year average in Shea Stadium. Less than one-half of the project's revenues are under short- and medium-term contracts (45%) with a portion of the suite contracts expiring this year (7%), making cash flow more dependent on ticket sales and game-day revenues. Coverage in 2012 was 1.61x, down from 1.72x in 2011. Continued poor on-field performance and overcapacity in the New York market may likely weaken stadium cash flows. Yankee Stadium Holdings LLC/Yankee Stadium LLC (BBB/Stable) Ticket revenues back the payment-in-lieu-of taxes (PILOT), rental, and bank loan payments. The U.S. paid attendance in 2012 was down a slight 3% to 3.54 million (87% capacity) as the paid attendance moves toward a stabilized level. The average ticket price was in line with 2011 at $87. Coverage of all PILOT, rental, and bank loan payments in 2012 was 3.3x. It improves to 3.5x, if we exclude the bank loan. While the bank loan was issued by its owner, Yankee Stadium Holdings, we use a consolidated DSCR because there are few significant limitations on distributions between the operating and holding companies. Based on our base case, we project 2013 coverage of all obligations will be in line with previous performance of around 3.3x, and 3.4x, excluding the bank loan.
Jayne M. Ross
Jodi E. Hecht
Jodi E. Hecht
Transportation
407 East Development Group General Partnership (A-/Stable) The project remains in the early stages of construction. The contractor appears to be on schedule Canada and budget, despite the province failing to grant it access to eight private land parcels as scheduled under the project agreement. As of April 4, 2013, it had drawn about 9% of its total cumulative contractor payments. This was well below the 19% originally envisioned under the maximum payment curve in the financial model. The discrepancy reflects its decision not to draw down on its full mobilization payment and to delay the start of construction, which was previously scheduled to occur in late 2012. However, the contractors choice to instead focus on design optimization has yielded a reduction in the required surface area and complexity of the bridge structures. We understand this will generate schedule efficiencies that will roughly offset the currently accrued delay associated with the land parcels. 407 International Inc. (A/Stable) 407 International owns a 99-year concession to operate the highway 407 express toll route, which Canada is a 108-kilometer expressway running just north of the city of Toronto. Traffic usage on 407ETR, as measured by vehicle kilometers traveled, remained fairly stable in 2012, reflecting the effect of high gas prices on discretionary travelers and the recent introduction of high-occupancy vehicle lanes on an alternative expressway. Still, we expect the company's toll rate increases and cost constraint to keep its senior DSCR above 2x in the next two years. 95 Express Lanes LLC (BBB-/Stable) 95 Express Lanes is being developed under a concession with the Virginia Dept. of U.S. Transportation (VDOT) to develop, design, finance, build, operate, and maintain a 29-mile reversible lane, managed lane project along I-95, south of Washington, D.C. The construction is being funded through a combination of senior debt, a TIFIA loan, equity, and contributions from VDOT. The project construction and budget remains on track, with overall project construction 28% complete as of March 15, 2012. The project is expected to achieve substantial completion by Dec. 30, 2014 and final completion by March 30, 2015. Paul Judson
Paul Judson
Jayne M. Ross
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Aeropuertos Argentina 2000 S.A. (B-/Negative) During 2012, the company's overall operating and financial performance remained in line with Argentina our expectations. AA2000's consolidated revenues increased about 20% year over year, mainly as a result of an increase in aeronautical income (due to a 16% increase in regional tariffs and a 17% increase in international tariffs approved last year by the local regulator. A boost in traffic levels also supported the increase, but to a lesser extent. Assuming no additional tariff adjustments in 2013 and beyond, sustained inflation, and conservative passenger traffic growth rates of about 3% for the next three years, we expect AA2000 to generate EBITDA of about $180 million during the next two years. We believe that the company will maintain strong cash flow protection measures for the rating category. The capital spending plan evolves in line with our expectations, with annual disbursements of about $220 million in 2012. From 2013 onward, we expect AA2000's capital spending to diminish, reaching $150 million annually as major works have already been completed. This however will still result in negative free operating cash flow. Aeropuertos Dominicanos Siglo XXI S.A. (BB-/Stable; BB-/Stable) The rating on Aerodom's notes, mirrors the corporate credit rating of its parent, Latin American Bermuda Airports Holdings Ltd., as it unconditionally and irrevocably guarantees both principal and interest payments. Our equalization of the rating on the notes reflects our view that the guarantee qualifies for rating substitution treatment. The rating on LAAH continues to reflect the credit quality of its operating subsidiaries (Aerodom and Fumisa) and the company's fair business risk profile and aggressive financial risk profile. Assuming annual conservative passenger traffic growth rates after 2012 of about 2.5% and cost increases in line with inflation, we expect Aerodom to be able to generate FFO of $55 million to $60 million and maintain good profitability margins during the next two to three years. As Aerodom completed its capital spending plan, as part of the concession agreement, future investments will be minimal. Amey Lagan Roads Financial PLC (BB(insured)/Stable; BB(SPUR)/Stable) Operationally, the project continues to perform adequately. The project has recently appointed a U.K. new and fully dedicated general manager with the aim of increasing the resources available to the project. We will continue to monitor the relationships between all parties in light of this development. Autolink Concessionaires (M6) PLC (AA-/Stable(insured); BBB-(SPUR)/Stable) Toll revenues remain relatively insensitive to the subdued traffic performance. This is in large part U.K. due to the project's banding mechanism, which introduces revenue protection subject to minimum thresholds of traffic movements for light and heavy vehicles. Based on the latest traffic movements, we think that there is still a considerable cushion available until returning to Band 1 for both light vehicles (mostly cars) and heavy vehicles (17% and 16% decrease required, respectively). This, in turn, makes this project largely immune to moderate-to-strong traffic declines, in our view. Costs in 2012 remained in line with budget and the repair works progress is as expected. Autopistas del Sol S.A. (raBBB/Negative) Due to the most recent 20% on average toll increases approved by the national government in late 2011 and in April 2012, Ausol's revenues increased 39% and its EBITDA 14% in 2012. Cash flow generation should benefit from the 9.2% toll increase applied Jan. 1, 2013. However, we don't forecast further toll increases, due to its discretionary status and the pending renegotiation of its concession contract and subsequent establishment of a clear tariff adjustment mechanism. Assuming inflation remains around 25%, we expect EBITDA margins to deteriorate from 2013 onward. We believe EBITDA generation will range from $65 million to $75 million for the next two years, which should allow Ausol to address interest payments, debt maturities, and capital spending.
Candela Macchi
Veronica Yanez
Robin Burnett
Jose Abos
Argentina
Andrea Zombory
Autovia de la Mancha S.A. (AA-(insured)/Stable; B(SPUR)/Stable) According to the information provided by Aumancha, only the toll payments corresponding to Spain November and December 2012 were in arrears as of mid-April 2013. We expect these two bills to be paid imminently, however, given that payment has already been approved with funds from the Spanish government extraordinary financing mechanism established to help local and regional governments pay suppliers. January 2013 toll payment was done on time and there is no other 2013 payment in arrears, given that tolls are set to be paid 60 days on arrears according to the
Jose Abos
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concession contract. Traffic in the first two months of 2013 declined by 8%, continuing the 2012 trend. This was partially offset by toll increases, which led to a year-on-year revenue decline of 2.7% in that period. Autovia del Camino S.A. (BBB-/Negative; BBB-(SPUR)/Negative) Traffic in 2012 decreased by 5%, 4.9% for light vehicles and 5.8% for heavy-good vehicles. Spain Overall, traffic decline is in line with our base case assumption. This poor performance has been partially offset by toll increases, leaving revenues overall in line with our baseline forecast. During the first three months of 2013, traffic has continued to drop by 5.6% compared with the same period in 2012 on the back of the weak economic scenario. Although this year-to-date traffic performance is weaker than we had previously anticipated (flat traffic for the whole year 2013), it is so far offset by a 3% toll increase, which is considerably above our baseline expectations. Operating costs have remained well in line with budget. Capital City Link General Partnership (A-/Stable) This project involves designing, building, financing, maintaining, and operating of Northeast Canada Anthony Henday Drive in Edmonton. The road consists of about 27 kilometers of a new six- and eight-lane divided freeway, plus additional basic and auxiliary lanes. It has 48 bridge structures, including nine interchanges, 10 flyovers, and two river structures. The design-build joint venture (consisting of Flatiron Constructors Canada Ltd., Dragados Canada Inc., Aecon Construction Management Inc., and Lafarge Canada Inc.) is undertaking construction. The construction began in July 2012 and we expect its completion by the schedule traffic availability date of Oct. 1, 2016. Volker Stevin Highways Ltd. will provide operations and maintenance and the project will retain rehabilitation responsibilities. Channel Link Enterprises Finance PLC (AA-/Stable; BBB(SPUR)/Stable) Eurotunnel reported annual results for 2012 at the end of March. These were stronger than budgeted by the company and forecast by us, driven by stronger-than-anticipated growth in traffic volumes. However, the company attributed a significant proportion of this growth to specific one-time events such as the London Olympics. Traffic volumes during 2013 will be closely monitored to establish the underlying growth trend.
Jose Abos
Yousaf Siddique
U.K.
Robin Burnett
Chicago Parking Meters LLC (CCR: BBB-/Stable) Chicago Parking Meters continues to perform in line with our expectations. Although there have U.S. been concerns with respect to a dispute with the City of Chicago on certain revenue streams, the arbitration process seems to be working and the city has made payment for the amount in dispute for 2011. Furthermore, we have not viewed these payments from the city as a credit risk at this time because our forecasts of company cash flows have never included them. The current debt to EBITDA ratio is around 5.8x and we expect it to remain in this area over the near term. Chinook Roads Partnership (A/Negative) Chinook entered into a project agreement to design, build, finance, maintain, and rehabilitate the Canada new 25 kilometer highway, as well as operate and maintain the 12 kilometers of existing highway in Calgary. Construction of earthworks is progressing as expected but structures and asphalt paving are slightly behind schedule. Chinooks management expects to continue dealing with staff retention and labor cost escalation issues as a result of a tight labor market in Calgary. However, the potential increase in costs will have limited financial impact on Chinook given that the risk is passed down to the design-build joint venture under the fixed-price agreement. The lenders technical advisor remains confident that the project will meet its traffic availability target date of Oct. 1, 2013. CountyRoute (A130) PLC (B+/Negative; B-/Watch Neg) We continue to await the receipt of a finalized and updated financial model, reflecting the agreed solution to fund further increased projected major maintenance spending.
Jatinder Mall
Valiant Ip
U.K.
Robin Burnett
DirectRoute (Limerick) Finance Ltd. (BB-/Negative (insured); BB-(SPUR)/Negative) Traffic volumes for the 11 months to the end of November 2012 continue the trend demonstrated Ireland throughout the year. Average daily traffic levels for this period are up 2.4% compared with the same period for 2011. While the growth is encouraging, volumes remain well below original expectations, and are still 26% below guaranteed levels. As previously reported, operational cost savings forecast for 2012 have not been achieved in full, so the projects financial profile remains
Robin Burnett
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very weak. Elizabeth River Crossings Opco LLC (BBB-/Stable) Design work is estimated as 80% complete; tasks related to on-site concrete erections, dredging, U.S. tunnel approaches etc. are in progress. In November 2012, the substantial completion date for existing downtown tunnels rehabilitation was moved by 140 days, to Dec. 24, 2016, and for existing midtown the date been extended by 70 days to July 20, 2018 to incorporate change orders. Other than for change orders as of Feb. 28, 2013, there were no significant changes to the construction schedule or budget. With the delay in the start of tolling until February 2014 from December 2013 Elizabeth River Crossings will receive $79.4 million of the agreed $112.5 million compensation damage revenues for tolling suspension from the state transportation department. ENA Norte Trust (BBB/Stable) Corredor Norte is an urban toll road located in northern Panama City. Traffic growth on Corredor Panama Norte is strong, with an average growth rate of 23.7% from 2007-2012, reflecting Panama's strong economic growth during this period. The $600 million secured notes are backed by the toll collected from Corredor Norte. We believe ENA Norte Trust's expected cash flow for debt service will be strong; under our base-case scenario, we expect a minimum DSCR of 1.79x, and an average debt service coverage of 3.52x, which reflects only interest payments. The project's capital structure contemplates a 100% cash sweep to amortize principal. We expect the notes to be fully amortized by July 2025, one and one-half years before maturity. ENA Sur Trust (BBB/Stable) During 2012, Corredor Sur's traffic grew 15.6%, resulting in revenue growth of 16.5% thanks to Panama Panama's solid growth and the continuous efficient operation of the toll road. We expect Corredor Sur to post average growth of 2.5% throughout the term of the notes. However, we also expect traffic growth on Corredor Sur to average 6.6% for the next two years due to Panama's continuing economic expansion and the toll road's status as an alternative route amid significant congestion in Panama City. For the 12 months ended November 2012, the project covered four coupon payments and reached a DSCR of 1.89x above our 1.47x expectations for the period. Fideicomiso 209.635 (Libramiento de Matehuala) (BBB/Stable; mxAAA/Stable) In 2012, traffic on the Libramiento de Matehuala grew of 8.3%, while revenues grew by 15.5% Mexico due to a toll increase and favorable traffic mix. Traffic and revenue growth are significantly above our projection of 3% average traffic growth and 6.6% growth in revenues, reflecting the country's stable economic conditions. We expect traffic to grow at an average rate of 3% throughout the debt's term, which reflects the road's vital trade link between Mexico and the U.S. as part of the NAFTA corridor. The project made its most recent coupon payment on Dec. 20, 2012, for a total debt service of MXN20.1 million and reported a strong DSCR of 1.59x. Fideicomiso 2990 (Punta Diamante) (mxAA/Stable) During the last quarter of 2012 and first quarter of 2013, traffic recovered due to seasonal holiday Mexico boosts. For the 12 months ended March 31, 2013, traffic increased 8% and since November, traffic has shown 19% average growth. For the same period, revenues increased 13% compared with the same period in 2011. Financial performance continues to be adequate; the DSCR for 2012 was 3.54x, and in line with our expectations. During 2012, higher major maintenance resulted in lower principal prepayments. Nevertheless, we expect a debt prepayment of 5% in the next 12 months and that the notes will be fully amortized in 2018, three years before legal maturity. During the first quarter of 2013, Fedeicomiso 2990 prepaid 1% of its debt, and since the note issuance prepaid 26.9%. Fideicomiso 464 (Plan del Rio) (mxAAA/Stable) Traffic is recovering after security concerns occurred in the region. For the 12 months ended Mexico March 31, 2013, traffic increased 2.2% compared with the same period in 2012. Revenues increased 9.5% due to tariff adjustments at the beginning of 2013. On April 1, 2013, the project covered its 32nd coupon, a senior coupon payment (principal and interest) of MXN11.9 million pesos and the interest on the subordinated debt of MXN6.7 million. For that period, the DSCR for the senior notes was 1.99x and above our expectations as revenues were stronger than projected and there was no major maintenance scheduled during the first quarter of the year. The DSCR for the subordinated debt was 1.72x. The next coupon payment is scheduled in June 2013. We expect traffic recovery to continue in the medium term, so the project can post average traffic
Jodi E. Hecht
Monica Ponce
Monica Ponce
Monica Ponce
Veronica Yanez
Veronica Yanez
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growth of 2.08% throughout the remaining life of the notes, leading to an average and minimum DSCR for the senior notes of 1.75x and 1.69x, respectively, for the same period. Fideicomiso 80.481 (Autopista Mexico-Toluca) (BBB+/Stable; mxAAA/Stable) In 2012, traffic on the Mexico-Toluca toll road increased by 5.2% and revenues were up 12.8%, Mexico driven by stable economic conditions in the region and also due to the toll increase. We expect traffic will continue to increase at an average growth rate of 4% during the life of the notes thanks to strong economic conditions in Mexico City and Toluca when compared with the rest of the country, and to increased commuter traffic between the two cities and in surrounding areas. The senior DSCR on the last coupon payment was 2.91x and subordinated coverage was 2.03x, allowing the project to prepay about MXN150 million of its senior debt. Fideicomiso 80425 (Monterrey-Cadereyta) (BBB-/Stable; mxAA/Stable) During 2012, traffic began to recover from the security-related issues in the state. Traffic showed Mexico an increase of 4.7% for the year, while revenues increased 11.3%, driven also by toll increases at the beginning of the year. The trust paid its 16th coupon for MXN103 million on Dec. 17, 2012, which included interest and principal, and made an expected prepayment of MXN26 million. Debt service coverage for 2012 was 1.41x, slightly higher than our projection of 1.33x as traffic recovered faster than we expected. With the major maintenance fully funded, we expect the trust will continue prepaying debt and amortize in full in June 2024, 5.5 years before schedule. Fideicomiso 833 (Veracruz-Cardel) (mxAA/Stable) For the 12 months ended March 31, 2012, traffic decreased 3.5% as light vehicle traffic continues Mexico to be impaired by security concerns in the state of Veracruz. However, heavy vehicles increased their participation in the traffic mix, as they perceived the toll road a safer road. We expect this change in traffic mix will continue in the medium term, thus improving cash flow generation. Revenues continue to reflect toll adjustments at the beginning of each year, for the same period revenues showed an increase of 3.7%. In January 2013, Fideicomiso 833 increased tolls by 6.5% on average for La Antigua and 11.3% in San Julian. The road made its 11th coupon payment of about MXN51 million on Feb. 15, 2013, with a DSCR of 1.26x, which is in line with our expectations. The next coupon payment was scheduled for May 2013. Grupo Aeroportuario del Centro Norte S.A.B. de C.V. (mxAA+/Stable) For 2012, OMA's revenues (excluding construction revenues) increased 14.7% as a result of Mexico traffic recovery, especially domestic traffic and continuous increases in OMA's non-aeronautical revenues. For the same period, aeronautical revenues increased 13.9%, reflecting a 6.8% increase in total passengers, led by a strong recovery in domestic traffic, which increased 7.8%, while international passenger traffic increased 2.3%. Non-aeronautical revenues increased 17% compared with 2011, thanks to its strategy to diversify OMAs commercial activities. We believe OMA will generate an EBITDA margin of about 50% during the next few years with positive free operating cash flow. Given the recent debt issuances, OMA's leverage is expected to reach 2x at year-end 2013. High Speed Rail Finance 1 PLC (A-/Stable) The project has a strong rationale as the sole high-speed rail connection between London and the U.K. Eurotunnel and in addition it benefits from a clear and transparent regulatory framework set up by the Office of Rail Regulation. It is a mix of availability and traffic risk with the former (domestic services) accounting for about 60% of total revenues and the latter (international services) mitigated by strong track record and relatively stable traffic volume at present. In addition, currently HSRF1 is showing strong operational performance, well below the penalty threshold. Highway Management (City) Finance PLC (AA-(insured)/Stable; BBB(SPUR)/Stable) There are no significant issues to report. Only two penalty points have been awarded since late U.K. 2010, both in relation to relatively minor operational issues only. The technical adviser continues to be satisfied with current maintenance plans. The previously reported outstanding issue with respect to a corporate joint venture bonus payment together with the requirement on the part of the project to purchase a further guaranteed investment certificate has finally been resolved, with no action required by the project. Lima Airport Partners SRL (BBB-/Stable) On March 4, 2013, we affirmed our ratings on LAP following its announcement that the Peruvian Peru
Monica Ponce
Veronica Yanez
Veronica Yanez
Veronica Yanez
Manuel Dusina
Robin Burnett
Candela Macchi
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Ministry of Transportation and Communications (MTC) had failed to comply with its obligation to deliver, in one single act, land required for the expansion of the Jorge Chavez International Airport (JCIA) by the Feb. 14, 2013, concession agreement deadline. Based on the current concession agreement signed on Feb. 14, 2001, LAP committed to complete a second runway at the JCIA on the abovementioned land provided by the MTC. This second runway was to be completed and ready for use by the end of the 14th year of the concession term. At the end of 2012, LAP requested an amendment to the concession agreement to avoid a breach of contract and eventual default under the indenture of the outstanding notes. The strong incentives to resolve the situation were a key determinant for our rating affirmation. Finally, on March 8, 2013, the MTC and LAP signed a sixth addendum to the agreement, which included a new deadline for the delivery of the land (December 2015), which could be done in partial deliveries and also included a possible airport-use fee for transit passengers (pending regulatory approval). We expect LAP to begin building a new terminal at the JCIA in the next few months and will conduct the required studies to start the new runway construction as soon as it receives the land. We believe additional debt could be an alternative to finance the project. We expect good prospects for passenger traffic in the short to medium term. Northwestconnect General Partnership (A/Stable) The northwest section of the Anthony Henday Drive was opened to traffic on Nov. 1, 2011 and Canada the operator is performing in line with expectations. Construction was scheduled to be completed Nov. 1, 2012 but the design-build joint venture was unable to finish construction by the scheduled date. The cost to complete is estimated to be around C$6 million and the project has held back C$6 million of progress payment (in cash) from the design-build joint venture. Under the project agreement, penalties incurred are passed down to the design-build joint venture. The project has the C$6 million and the design-build joint ventures LOC of C$25 million, which would provide sufficient liquidity if Alberta Transportation decides to impose penalties for incomplete work. Ostregion Investmentgesellschaft Nr. 1 S.A. (B+(insured)/Negative; B+(SPUR)/Negative) We understand that the negotiations between the concessionaire Bonaventura and the key project parties concluded with the ratification at the end of February 2013 in the terms anticipated in our latest Research Update, published Feb. 1, 2013. This includes the sale of participation rights and control to mezzanine debt holders, the subordination of mezzanine principal and interest and the release of the last payment of the construction contract to the contractor. Traffic in the whole year 2012 performed above our baseline forecast, with light and heavy vehicles growing by 7% and 3.8%, respectively, vis-a-vis 2011. Year-on-year traffic evolution in the first quarter of 2013 shows a deceleration, however, with light vehicles still growing at 3.8% but heavy vehicle traffic remaining virtually flat. Red de Carreteras de Occidente S.A.P. de C.V. (mxAAA/Stable) RCO, a consortium formed by Empresa ICA (19.8%), Grupo GSIP (50.6%), and Mexican institutional investors (CKDs; 29.6%), holds the concession title for a four-toll road network (Maravatio-Zapotlanejo, Zapotlanejo-Lagos de Moreno, Leon-Aguascalientes, Guadalajara-Zapotlanejo) and two toll highways (Irapuato-La Piedad and Queretaro-Irapuato), where the government collects the tolls and pays the concessionaire for the use of the road. This four-toll road network represents the largest and most important highway network between Mexico City and Guadalajara, in Mexico's center-west region. We expect that the average traffic growth rate for the four toll roads from 2012 to 2037 will be 4.1%. RCO placed MXN8.125 billion in debt capital markets in mid-2012 to refinance some of its maturities in 2014. We expect the project to present a strong average DSCR of 1.98x and a minimum of 1.18x, during the life of the notes under our base-case scenario. For the six-months ended February 2012, in which RCO made its first coupon payment on its debt certificates, the coverage was 1.63x.
Valiant Ip
Austria
Jose Abos
Mexico
Monica Ponce
Reliance Rail Finance Pty Ltd. (CCC+/Positive; CCC-/Positive) Thirty-five trains have now achieved practical completion, and if the current rate of about three Australia trains per month can be maintained, the final train will be delivered around mid-2014, which would be six months earlier than we had expected. Twenty-two trains have now achieved the initial reliability milestone for final completion, but because of the minor defects outstanding, no train sets have achieved full completion. Reliance Rail reports continued improvements in operational performance. At March 31, 2013, the A$357 million bank debt facilities were drawn to A$290 million; it is expected to be fully drawn in September 2013. The project's cash flows and finance structure continue to be maintained by pass-through mechanisms within contracts and liquidated damages, where required.
Phil Grundy
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Road Management Consolidated PLC (B(insured)/Stable; B(SPUR)/Stable) Overall, traffic growth on the roads and the financial profile of the project remain weak.
U.K.
Robin Burnett
Ruta del Bosque Sociedad Concesionaria S.A. (BB+/Stable) During 2012, total traffic grew 8% on RdB, mainly driven by a light traffic increase of 10%, while Chile its toll income rose 12%. RdB tolls also are adjusted by a "safety premium" (related to the safety levels on the road), which allow the road to increase its tolls in real terms up to a maximum of 5%. The safety premium for RdB is currently 4.16%. Current revenues of about Unidad de Fomento (inflation protected units (UF)) 1.1 million for 2012) are significantly above the minimum guaranteed revenues of UF579,000 for the same period. In addition, RdB benefits from a state subsidy, which is a mandatory payment and somewhat improves RdB's financial flexibility. We expect RdB to receive UF257,000 in subsidies in 2013. Additional safety improvements to the toll road for UF684,000 have been signed with the public works ministry, beginning in the last quarter of 2012 and second quarter of 2013. Assuming a 4% increase in net revenues in 2013, in line with Chile's GDP growth expectations, and a real, long-term revenue growth of 3%, the toll road should post an average and minimum DSCR of about 1.23x and 1.18x, respectively. Ruta del Maipo Sociedad Concesionaria S.A. (BBB-/Stable) During 2012, total traffic increased 13.3% compared with 2011, mainly driven by a light traffic Chile increase of 14.8%, while toll income increased 10.3% during the same period. The minimum income guarantee for 2013 is UF2.3 million. During 2012, Maipo's toll income was around UF3.3 million, well above the minimum income guarantee of UF2.2 million for that year. Assuming a 4% increase in net revenues in 2013, in line with Chile's GDP growth expectations, and real, long-term revenue growth of 3%, the toll road should post an average and minimum DSCR of about 1.24x and 1.14x respectively. Ruta del Maule Sociedad Concesionaria S.A. (BBB-/Stable) During 2012, total traffic increased 7.6%, compared with 2011, mainly driven by a light traffic increase of 9.9%. Toll collections have increased in line with traffic performance, and toll income grew 9.1%. This also reflects the real tariff adjustment the concession terms allow. Maule also adjusts tariffs based on a "safety premium" (Premio de Seguridad Vial, which relates to road safety levels) that allow toll road operators to increase tariffs in real terms, up to a maximum of 5%; this is incorporated in the income distribution mechanism calculation. The safety premium for the concession is currently 5%. The minimum guaranteed revenues for 2013 are UF1.73 million, which will be transferred, if needed, during second-quarter 2013. As of Dec. 31, 2012, Maule's revenues were about UF1.8 million. Assuming a 4% increase in net revenues in 2013, in line with Chile's GDP growth expectations, and real, long-term revenue growth of 3%, the toll road should post an average and minimum DSCR of about 1.47x and 1.19x, respectively.
Andrea Zombory
Andrea Zombory
Chile
Andrea Zombory
Santos Brasil Participacoes S.A. (brAA+/Stable) We upgraded Santos Brasil in December 2012 because we believe the company has consolidated Brazil its business and competitive position, owing to its ownership of Tecon Santos, the largest container port in South America that generates fairly stable cash flows and resilient operating margins, and its improvements over operating efficiency, backed by an increase in movements per hour. Under our base-case scenario, and assuming a 10% increase over consolidated revenues in the next two years, we expect Santos Brasil to generate an EBITDA of about R$570 million to R$640 million. In this scenario, we project total adjusted debt to EBITDA and FFO to debt of about 1x and 60% to 80%, respectively, in the next two years. As the company already finished its expansionary investments in the three terminals, capital spending should decrease since logistics and terminal vehicles expansion plans do not require significant resources. However, we believe that if Santos renegotiates its concession contracts, capital spending could rise. Sociedad Concesionaria Autopista Central S.A. (BBB/Stable) Autopista Central continues to show good traffic and revenue performance, with a relatively Chile strong average DSCR. During 2012, traffic grew about 4.9% and revenues about 9.9% compared with 2011 levels, reaching a debt service coverage of 2.03x in 2012, compared with 1.95x in 2011. The 2012 coverage calculation includes about UF324,000 ($16 million) used to finance the construction of a portion of a 7.7 kilometer third lane ("tramo D") on the General Velijsquez Road, which has been fully operational since March 2013. Although the toll road has several other
Candela Macchi
Andrea Zombory
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planned projects, we are not concerned from a credit perspective, given Chile's ministry of public works' strong track record for compensating the concessionaire's investments through tariffs, concession term extensions, direct cash payments, etc. Assuming a 4% increase in net revenues in 2013, in line with Chile's GDP growth expectations, and a real, long-term revenue growth of 3%, the toll road should post an average and minimum coverage of about 1.8x and 1.5x, respectively. Sociedad Concesionaria Costanera Norte S.A. (BBB+/Stable) In 2012, traffic rose by 3.5% and revenues by 8% due to higher volumes of light vehicles and, to a Chile lesser extent, higher tolls. As a result, Costanera posted strong debt service coverage of 3.09x in 2012, in line with 3.16x in 2011. Assuming a conservative 3.5% net revenue growth rate during the notes' term, we expect an average coverage of about 2.5x and a minimum of 2x. In October 2012, Costanera began building projects as per the East Central Santiago Plan announced by Chile's ministry of public works in May of last year. In February 2013, Costanera began building additional projects, including widening the Concepcion's exit, a new road between the toll road and Route 5, and improvements in the connection between Avenida Kennedy and Avenida Manquehue. We expect Costanera to finance the projects with existing cash, without the need for additional debt. Although the company has planned several additional projects with the ministry, we are not concerned from a credit perspective, given the ministry's strong track record for compensating the concessionaire's investments through tariffs, concession term extensions, and direct cash payments. Sociedad Concesionaria Vespucio Norte Express S.A. (BB/Stable) On Oct. 1, 2012, Brookfield Asset Management Inc., through Brookfield Americas Infrastructure Chile Holdings (Brookfield), acquired a 45.4% stake in VNE from Hochtief PPP Solutions Chile Ltd. (Hochtief) and Inversiones de Infraestructura S.A., and now fully owns the Chilean toll road operator, which did not affect the ratings. During 2012, VNE's traffic rose about 9.2% and revenues about 4.2%, compared with 2011's significant increases due to earthquake-related insurance inflows. Although VNE's DSCR has improved over the past three years, thanks to improved operating performance and in line with our expectations, it still posted a relatively weak coverage of 1.09x in 2012. Assuming a 5% short-term revenue growth rate and flat long-term average rates of about 3% throughout the life of the notes, we expect VNE to post a minimum coverage of 1.01x (in 2025) and an average of 1.21x. In our view this is somewhat tight, although still in line with the rating. Terminales Portuarios Euroandinos Paita S.A. (BB/Stable) During the second quarter of 2012, TPE's sponsors made a $53 million equity contribution after a Peru planned issuance of $110 million bonds. Construction works have started at the port, and are in line with the original schedule and budget. We expect TPE's ability to generate cash flow to depend heavily on the performance of Perus economy, and especially on the regional agricultural development in Piura. Assuming conservative traffic increases over the next few years of about 3%, we believe that the project could achieve a minimum DSCR of 1.3x and an average of 2.8x. TESC - Terminal Santa Catarina S.A. (brA-/Stable) TESC's credit quality is linked with that of its sister company, WRC Operadores Portuarios S.A. Brazil because of the high integration between the two businesses and the existence of an irrevocable and unconditional corporate guarantee from WRC to TESC's debentures. Therefore, we follow a consolidated approach to the ratings. TESC's operational and financial performance improved beyond our expectations in 2012, mainly attributable to a recovery of container trade volumes. This improvement on a consolidated basis has balanced WRC's EBITDA deterioration, due to intense competition in the region. On a consolidated basis, we assumed a scenario with a 20% decrease in container volumes handled at WRC in 2013, reaching negative 10% in 2014, and a 10% improvement in coil and bulk cargo at TESC. Under this scenario we expect the company to maintain cash flow measures consistent with the rating category, as evidenced by FFO to total debt of about 15% to 20% and debt to EBITDA of 3x to 4x in the next two to three years. Verdun Participation 2 S.A. (Millau Viaduc) (AA-/Stable; BBB-(insured)/Stable; BBB-(SPUR)/Stable) Recent traffic flow continues to confirm the high seasonality that this project has. The bridge has France the distinctive feature of being mainly a holiday route and therefore more sensitive to flows of holidaymakers. As of Dec. 31, 2012, annual traffic levels declined for the first time since the project's inception. Consequently, we have revised our base-case scenario for the project's
Andrea Zombory
Andrea Zombory
Andrea Zombory
Candela Macchi
Manuel Dusina
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performance. Under our updated base case, we have lowered expected cumulative annual traffic growth rates for 2013 and 2014 to 1.2%, compared with 1.7% previously. (This compares with the project's expectation of cumulative annual growth of about 2.9%.). However, its supportive concession/tariff mechanism, it has partially offset the impact of traffic volatility on cash flow available for debt service. WVB East End Partners LLC (BBB/Stable) On March 28, 2013, we assigned final ratings on WVB East End Partners' private activity bonds. U.S. WVB has executed a public-private agreement with the Indiana Finance Authority to design, build, finance, maintain, and operate the East End Crossing bridge/tunnel/road project for a term of about 39 years. The project includes a 1,680-foot tunnel and an approximately 2,500-foot cable-stayed bridge, together with smaller bridges and road construction/rehabilitation covering about nine miles in the greater Louisville, Ky./Southern Indiana region. The project is being funded with private activity bonds, milestone payments, and equity. The construction period benefits from the presence of experienced design-build contractors backed by joint and several guarantees from parents, as well as adequate liquidity and contingencies, although the rating is limited by what we believe is a tight schedule and budget.
Industrial
Abengoa S.A. (CCR: B+/Watch Neg) The negative outlook on Abengoa reflects a one-in-three chance of a downgrade if the company's Spain liquidity weakens (e.g., due to material unwinding of the sizable working capital deficit), potential proceeds from asset sales are not largely used for debt repayment, or if we do not see deleveraging over the medium term. Specifically, at the current rating level, we expect a substantial reduction in negative consolidated free cash flow from 2014 onward, helped by a significant reduction in capital spending, and deleverage to below 9x adjusted debt to EBITDA by mid-2014, and gradually thereafter. We could also downgrade the rating if we were to reassess the business risk profile to "weak", for example, as a consequence of sales of mature assets or deterioration in profitability or market conditions. Ajman Sewerage (Private) Co. Ltd. (BB(insured)/Positive; BB(SPUR)/Positive) Ajman Sewerage's completion of enhancements under its treatment plant enhancement works contract with Veolia Water Solutions & Technologie - Emirates LLC on Sept. 22, 2012, as well as our updated assessment of the project's financial profile resulted in a revision to a positive outlook in November 2012. We now project that Ajman Sewerage will report DSCRs (on a six-month look-back basis) of 1.5x or above, over the period 2012 to 2016. Jose Abos
United Arab Emirates
Karim Nassif
Iowa Fertilizer Co. LLC (BB-/Stable) Construction is scheduled for completion by November 2015. Near-term downside risks can U.S. emerge if the project has construction delays that extend beyond six months. Given the current economics for fertilizers, we expect that ratings will likely increase as the project goes into commercial operations. Our base-case estimates that trend an average of about 2.4x and minimum levels of about 1.75x suggest that ratings can be as high as 'BB+' during the operations phase. However, expected high volatility in future cash flows and the single-asset nature of the project preclude investment-grade ratings. Metropolitan Biosolids Management LLC (BBB+/Stable) The project processed close to 105 tons per day in the six months ended December 2012, up U.S. slightly from 102 per day in the prior-year period. The present volume results in revenues that are insufficient to cover operating expenses and debt service. Under the O&M agreement all operating costs, including fuel, are paid by the operator, which then invoices MBM monthly. Under the service agreement with the district, MBM receives a base facility fee sized to cover debt service and a variable service fee designed to cover operating costs. However, MBM must pay operating costs only after debt service has been paid and reserve accounts are fully funded. In such a scenario, the rating on the project is tightly linked to the senior unsecured rating on Veolia Environment S.A. Veolia Energy Atlantic Station LLC (BBB/Stable) Veolia Energy Atlantic Station (formerly Trigen Atlantic Station) owns a district cooling project in U.S. Atlanta, Ga. Performance in 2012 was lower than 2011 and 2010 with coverage falling to 1.86x from 2.13x and 2.34x, respectively. Lower commodity revenues along with higher debt service
Aneesh Prabhu, CFA, FRM
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lead to the fall. On March 1st, the series C notes were paid off though a capital contribution from the parent Veolia, which should lead to annual savings of about $450,000. We expect the DSCR to average close to 2x, assuming current pricing remains stable.
Ratings as of May 31, 2013.
Contact Information
Table 6
Contact Information
Credit Analyst Jose Abos, Director Mario Angastiniotis, Director Alvaro Astarloa, Associate Director Michela Bariletti, Director, Analytical Manager Luisina Berberian, Rating Analyst Antonio L. Bettinelli, Associate Director Valerie Blair, Managing Director, Analytical Manager Robin Burnett, Director Watcharee Corkill, Senior Research Assistant Richard W. Cortright Jr., Managing Director Stephen Coscia, Rating Analyst Richard Creed, Director Tom Dar, Senior Research Assistant Trevor J. D'Olier-Lees, Director Manuel Dusina, Associate Director Vinicius Ferreira, Rating Specialist Stephen R.W. Goltz, Director Alejandro Gomez Abente, Associate Director Maria del Sol Gonzalez, Associate Director Sofia Grach, Associate Michael V. Grande, Director Philip Grundy, Director Mark Habib, Director Jodi E. Hecht, Director James Hoskins, Associate Director Valiant Ip, Rating Specialist Thomas Jacquot, Director Paul Judson, Director Jeong-A Kim, Director Jennifer Love, Associate David Lum, Senior Research Assistant Location Madrid Toronto Sao Paulo London London San Francisco Toronto London London New York New York Melbourne Tel Aviv New York London Sao Paulo Toronto Sao Paulo New York Tel Aviv New York Melbourne New York New York London Toronto Melbourne Toronto New York Toronto San Francisco Phone (34) 91-389-6951 (1) 416-507-2520(55) 11-3039-9757 (44) 20-7176-3952 (44) 20-7176-3276 (1) 415-371-5067 (1) 416-507-2536 (44) 20-7176-7019 (44) 20-7176-3989 (1) 212-438-7665 (1) 212-438-3183 (61) 39-631-2045 (972) 3-753-9722 (1) 212-438-7985 (44) 20-7176-5530 (55) 11-3039-9763 (1) 416-507-2507 (55) 11-3039-9741 (1) 212-512-4782 (972) 3-753-9724 (1) 212-438-2242 (61) 39-631-2063 (1) 212-438-6344 (1) 212-438-2019 (44) 20-7176-3393 (1) 416-507-3219 (61) 29-255-9872 (1) 416-507-2523(1) 212-371-1211 (1) 416-507-3285 (1) 415-371-5013 E-Mail jose.abos@standardandpoors.com mario.angastiniotis@standardandpoors.com alvaro.astarloa@standardandpoors.com michela.bariletti@standardandpoors.com luisina.berberian@standardandpoors.com antonio.bettinelli@standardandpoors.com valerie.blair@standardandpoors.com robin.burnett@standardandpoors.com watcharee.corkill@standardandpoors.com richard.cortright@standardandpoors.com stephen.coscia@standardandpoors.com richard.creed@standardandpoors.com tom.dar@standardandpoors.com trevor.d'olier-lees@standardandpoors.com manuel.dusina@standardandpoors.com vinicius.ferreira@standardandpoors.com stephen.goltz@standardandpoors.com alejandro.gomez.abente@standardandpoors.com maria.gonzalezcosio@standardandpoors.com sophia.grach@standardandpoors.com michael.grande@standardandpoors.com philip.grundy@standardandpoors.com mark.habib@standardandpoors.com jodi.hecht@standardandpoors.com james.hoskins@standardandpoors.com valiant.ip@standardandpoors.com thomas.jacquot@standardandpoors.com paul.judson@standardandpoors.com jeonga.kim@standardandpoors.com jennifer.love@standardandpoors.com david.lum@standardandpoors.com
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Table 6
Contact Information (cont.)

David Lundberg, Managing Director, Analytical Manager Pablo F. Lutereau, Managing Director, Analytical Manager Candela Macchi, Associate Director Ben L. Macdonald, CFA, Director Jatinder Mall, Director Karim Nassif, Associate Director Nora Pickens, Associate Director Monica D. Ponce, Associate Director Aneesh Prabhu, Senior Director Terry Pratt, Director Etai Rappel, Director Jayne M. Ross, Director Anne Selting, Senior Director, Analytical Manager Yousaf Siddique, Associate Director Mike Wilkins, Managing Director Veronica Yanez, Associate Director Rubina Zaidi, Associate Director Andrea Zombory, Rating Analyst New York Buenos Aires Buenos Aires San Francisco San Francisco Dubai New York Mexico City New York New York Tel Aviv New York San Francisco Toronto London Mexico City New York Buenos Aires (1) 212-438-7551 (54) 11-4891-2125 (54) 11-4891-2110 (1) 415-371-5005 (1) 415-371-5071 (97) 1-4372-7152 (1) 212-438-2257 (52) 55-5081-4454 (1) 212-438-1285 (1) 212-438-2080 (972) 3-753-9718 (1) 212-438-7857 (1) 415-371-5009 (1) 416-507-2559 (44) 20-7176-3528 (52) 55-5081-4485 (1) 212-438-1249 (54) 11-4891-2154 david.lundberg@standardandpoors.com pablo.lutereau@standardandpoors.com candela.macchi@standardandpoors.com ben.macdonald@standardandpoors.com jatinder.mall@standardandpoors.com karim.nassif@standardandpoors.com nora.pickens@standardandpoors.com monica.ponce@standardandpoors.com aneesh.prabhu@standardandpoors.com terry.pratt@standardandpoors.com etai.rappel@standardandpoors.com jayne.ross@standardandpoors.com anne.selting@standardandpoors.com yousaf.siddique@standardandpoors.com mike.wilkins@standardandpoors.com veronica.yanez@standardandpoors.com rubina.zaidi@standardandpoors.com andrea.zombory@standardandpoors.com
Related Criteria And Research

Industry Report Card: New Finance Structures Set To Spur A Revival Of Debt Issuance In The Project Finance Industry, May 29, 2013 Industry Report Card: Latin American Infrastructure Credit Quality Remains Healthy, May 14, 2013 Potential Credit Effects Of The U.K. Government's New Plan For Project Finance: Private Finance 2, Dec. 13, 2012 Updated Project Finance Summary Debt Rating Criteria, Sept. 18, 2007 Comments and ratings reflect available public data as of May 31, 2013.
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Industry Report Card:

Project Finance Continues Its Growth Around The World

JULY 31, 2013 1

Industry Report Card:

Project Finance Continues Its Growth Around The World

JULY 31, 2013 2

JULY 31, 2013 3

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JULY 31, 2013 5

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U.S. Rating Changes Dec. 6, 2012 To May 31, 2013

BBB-/Stable CC/Negative BBB/Negative

Confederated Tribes of the BBB-/Negative Warm Springs Reservation

LS Power Funding Corp. Queens Ballpark Co. LLC

Dec. 14, 2012 Dec. 21, 2012 May 15, 2013

Red Oak Power LLC

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U.S. Rating Changes Dec. 6, 2012 To May 31, 2013 (cont.)

New Finance Structures Set To Spur A Revival Of Debt Issuance In EMEA

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BBB-/Stable BB+/Positive BBB/Negative BBB/Stable BBB-/Stable BBB+/Stable BB-/Watch Neg

BBB/Negative BB+/Stable BBB/Stable N/A BBB-/Negative BBB/Positive BB-/Stable

JULY 31, 2013 9

BBB-/Stable B/Stable A-/Watch Neg

BBB-/Positive B+/Negative A-/Stable

Sutton Bridge Financing Ltd. Sutton Bridge Financing Ltd.

BBB-/Watch Pos A/Negative

BBB-/Negative BBB-/Watch Pos

Not rated BBB/Stable A-/Stable

A/Negative BBB-/Positive N/A

JULY 31, 2013 10

Transit Projects Are Gaining Steam In The Canadian PPP Market

Growing Opportunities Across Asia-Pacific

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Asia-Pacific Rating Actions

JULY 31, 2013 12

Latin American Infrastructure Credit Quality Remains Healthy

Latin American Project Finance - Rating/Outlook/CreditWatch Actions

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Ben L. Macdonald, CFA

Ben L. Macdonald, CFA

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Richard W. Cortright Jr.

Richard W. Cortright Jr.

Gonzalez Maria del Sol

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Richard W. Cortright Jr.

JULY 31, 2013 17

Richard W. Cortright Jr.

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Richard W. Cortright Jr.

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Aneesh Prabhu, CFA, FRM

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Ben L. Macdonald, CFA

Ben L. Macdonald, CFA

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Stephen R.W. Goltz

JULY 31, 2013 23

Ben L. Macdonald, CFA

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