NEW YORK-- Fitch Rating assigns an 'A' rating to the following American Muncipal Power, Inc. (AMP) Prairie State Energy Campus (PSEC) project revenue bonds:
--$534.9 million Prairie State Energy Campus project revenue bonds, refunding series 2015A;
--$246 million Prairie State Energy Campus project revenue bonds, refunding series 2015B (B1,B2, B3)
The bonds are expected to price on Dec. 16, 2014. Proceeds willed be used to advance refund portions of the AMP PSEC's outstanding series 2008A and 2009A bonds. In addition,Fitch affirms AMP PSEC's outstanding $1.7 billion Prairie State Energy Campus project revenue bonds at 'A'.
The Rating Outlook is revised to Negative from Stable for all bonds.
SECURITY
The bonds are secured and payable from gross receipts including payments made by the PSEC participants under the power sales contract and other funds established pursuant to the indentured. AMP has covenanted under the indentured to set participant rates at a level sufficient to generate 1.1xdebt service coverage on the PSEC project bonds.
KEY RATING DRIVERS
WEAKENED PARTICIPANT FINANCIAL METRICS: The negative outlook refects weakened fiscal 2013 metrics for several of the 21 largest projects participants which together represents 80.8% of project capacity. A key credit concern is the meaningful deterioration exhibited by four of the top six participants - Hamilton, Cleveland, Piqua, and Celina. In particular, a delay in implementing needed rate increases to recover higher purchased power costs may have contributed to the decline in debt service coverage and depletion of cash resources at these cities.
PLANT PERFORMANCE BELOW EXPECTATIONS: Operating performance at PSEC, a dual unit, pulverized coal-fired generation station located in southwest Illinois, has been relatively weak since entering commercial operation and was hampered by several unscheduled outages and re-rates during 2013 and 2014. While the take-or-pay nature of the PSEC contracts obligates the participants to pay regardless of plant performance, the resultant reduction in plant availability along with higher transmission congestion costs increased all-in power costs to well above original estimates which in turn has pressured participant financial metrics.
STRATEGIC OVERVIEW IMPLEMENTED: The owners of PSEC, including AMP, have implemented a strategic overview designed to stabilize and improve operations in 2015 and beyond. The overview, which includes a change in project leadership, appears reasonable and has contributed to stronger plant availability toward the latter part of 2014.
ENTIRE OUTPUT CONTRACTED: AMP'S entire share of PSEC output is purchased pursuant to take-or-pay power sales contracted with 68 municipally-owned electric systems. Participants' obligations consist of their respective shares of the project costs. Debt service is paid entirely by the municipal systems as an operating expense.
RATING SENSITIVITIES
CHANGE IN PARTICIPANTS METRICS: The operating and financial metrics of the project participants, many of whom exhibited meaningful erosion in financial metrics during 2013, will be a key factor in future rating actions.
STANDARD CONTRACT STEP-UP PROVISION: The power sales contract includes standard step-up provisions that require each participant to step up its purchase by 25% of its original allocation of the project output in the event that another participant defaults.
Well what do you think? How will all this affect Painesville?