Fitch Affirms East Coast Power LLC's $554MM Series B Notes at 'BBB'; Outlook Stable
CHICAGO-(Business Wire)-September 24, 2009 - Fitch Ratings has affirmed East Coast Power LLC's series B $554 million ($264.5 million outstanding) senior secured notes due 2012 and 2017 at 'BBB'. The rating reflects the project's continued strong financial performance and reduced total leverage. The Rating Outlook is Stable. Fitch has evaluated East Coast Power's credit quality on a stand-alone basis, independent of the credit quality of its owners, a subsidiary of General Electric Capital Corporation (99% of membership interests) and Arroyo ECP Holdings LLC (1% of membership interests).
In 2008, the debt service coverage ratio (DSCR) for the rated notes exceeded 2.8 times (x), and the DSCR in 2007 exceeded 3.3x. During the first half of 2009 the coverage remains sound at 3.38x, and a similar level of coverage is expected for the remainder of 2009. Tranche A was fully amortized as scheduled in 2008. Fitch expects the reduced leverage should increase cash flows available for debt service of the senior notes and improve near-term debt service coverage ratios. East Coast Power has indicated that there are no plans currently to issue additional debt at the subsidiary level.
East Coast Power derives most of its revenues from long-term energy service agreements providing energy, capacity and steam to investment-grade counterparties, resulting in relatively stable and predictable cash flow. Merchant sales of surplus capacity and energy continue to comprise less than five percent of earnings before interest and depreciation, minimizing merchant sales risk. Operating risk is low with historically high reliability of the project's facilities. Linden 6 Unit had a scheduled outage in April 2009 that raised maintenance costs to $7 million from $1.9 million in first half-2008. A scheduled outage on units 1-5 will take place in October for inspection.
East Coast Power consistently has been able to procure fuel at prices favorable to its contractual index, resulting in fuel cost savings shared with its primary counterparty. Linden Venture recently implemented an optimization program designed to maximize efficiency by reducing heat rates across its generating units. Lower heat rates can reduce fuel expenses, potentially improving East Coast Power's cash flow.
The variable-frequency transformer (VFT) transmission project is scheduled to start commercial operations in November 2009. The VFT project is fully funded by equity contributions from other General Electric Company subsidiaries, although East Coast Power retains 15% ownership. The VFT project is expected to generate moderately positive cash flow for East Coast Power.
East Coast Power owns interests in two gas-fired cogeneration facilities in Linden, N.J. Linden Venture sells up to 645 megawatts of capacity and energy to Consolidated Edison Company of New York, Inc. (Issuer Default Rating 'BBB+' with a Stable Outlook by Fitch) under a power purchase agreement expiring in 2017. Linden Venture also supplies steam to a ConocoPhillips refinery and Infineum USA petrochemical facility. The 165 megawatt Linden 6 facility provides steam to Linden Venture and electric power to the ConocoPhillips and Infineum facilities under long-term agreements.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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