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Announcement:

MOODY'S AFFIRMS THE Baa3 RATING OF SELKIRK COGEN; RATING OUTLOOK IS STABLE

18 Nov 2005
MOODY'S AFFIRMS THE Baa3 RATING OF SELKIRK COGEN; RATING OUTLOOK IS STABLE

Approximately $299 Million (Originally $392 Million) of Debt Securities Affected

New York, November 18, 2005 -- Moody's Investors Service affirmed the Baa3 rating of Selkirk Cogen Funding Corporation's (Selkirk Cogen) 8.65% senior secured bonds due 2007 and Selkirk Cogen's 8.98% senior secured bonds due 2012. The rating outlook is stable.

The rating affirmation reflects Moody's view that the extension and replacement of Selkirk Cogen's four natural gas supply contracts does not change the credit quality of the project. These contracts with various natural gas suppliers have been extended through the term of the bonds. Selkirk Cogen had extended three of the four natural gas supply contracts with its existing suppliers in November and December 2004, and replaced the fourth natural gas supply contract with a contract from a new supplier in early November 2005. Based upon the terms of the extensions and the terms of the new natural gas contract, Moody's anticipates that Selkirk Cogen's debt service coverage ratio (DSCR) will average around 1.80x during the term of the financing with a minimum DSCR of around 1.50x. While these projected financial metrics are relatively strong in comparison to other gas fired power projects in the Baa3 rating category, achieving the projected coverages in the last four years of the financing is partially dependent upon merchant revenues. An important consideration for the rating is the expectation that revenues derived from a power purchase agreement with ConEdison will provide sufficient cash flow to cover all of the project's obligations past the maturity of the bonds in 2012. The rating also considers structural features in the financing, including a trustee administered waterfall of accounts for revenues and cash outlays, and a cash funded six month debt service reserve.

Under the terms of the financing documents, Selkirk Cogen had established a Gas Contract Extension Fund since the extension or replacement of the four natural gas supply contracts did not occur prior to December 26, 2004. Excess cash, which would have otherwise been distributed to the owners, had been trapped in the project and used to begin funding the Gas Contract Extension Fund. With the extension or the replacement of the four natural gas supply contracts and the resulting expected financial metrics, the excess cash being held in the Gas Contract Extension Fund is likely to be released to the sponsors on the next distribution date.

The rating affirmation considers the predictability of the company's cash flows derived principally from a power purchase agreement (PPA) with Consolidated Edison of New York, Inc. (ConEd) that expires in 2014, and a PPA with Niagara Mohawk Power Corporation (Niagara Mohawk) that expires in 2008. The rating recognizes the project's increased exposure to the merchant energy marketplace, beginning in July 2008, following the expiry of the Niagara Mohawk amended power purchase agreement. While cash flows from the project may demonstrate greater volatility during the last four years of the financing, Selkirk Cogen's core cash flows are expected to remain highly contracted as the revenues from the power purchase agreement with ConEd, which extends past the final maturity of the financing, are expected to provide 85% of the total electric revenues and 75% of the total revenues at Selkirk Cogen during the final four years of the financing.

The stable outlook reflects the continuation of strong cash flow metrics at Selkirk Cogen, particularly through 2008 as cash from operations to total debt is expected to remain above 30% during this timeframe. The stable outlook also incorporates the successful extension and replacement of the natural gas supply contracts through the term of the financing, and considers the expected continuation of strong operating performance, a characteristic of the project since its inception. While the potential for a rating upgrade is limited by the project's near-term exposure to the merchant energy market place beginning in 2008, the rating could be upgraded if such exposure is mitigated through the establishment of new off-take agreements which result in a sustainable DSCR that is in excess of 1.6x on a fully contracted basis through the term of the financing or if the project's competitive position enables it to secure incremental merchant margins that result in a DSCR that is comfortably in excess of 2x on a sustainable basis. The rating could be downgraded in the event of deterioration in the operating performance of the plant that results in the DSCR falling below 1.4x on a sustainable basis, or should there be a material decline in the credit quality of the off-takers, principally ConEd, which has historically provided around 65% of the project's revenues.

Selkirk Cogen is a wholly owned subsidiary of Selkirk Cogen Partners, L.P. (Selkirk Partners) established to serve as a single-purpose financing subsidiary. Selkirk Partners is a Delaware limited partnership that owns a 345 natural gas-fired cogeneration facility in Selkirk, New York. The partnership has long-term contracts for the sale of electric capacity and energy produced by the facility with Niagara Mohawk and ConEd and steam produced by the facility with GE Advanced Materials, a core business of General Electric Company. Selkirk Cogen's obligations are unconditionally guaranteed by Selkirk Partners.

Selkirk Partners are jointly owned by subsidiaries of the Robert McNair Group, ArcLight Capital Partners, Caithness Energy, Atlantic Power Corporation and Cogentrix. A subsidiary of Cogentrix acts as the managing general partner for the partnership.

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A.J. Sabatelle
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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