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Rating Action:

MOODY'S ASSIGNS Ba2 TO SENIOR SECURED NOTES OF CE CASECNAN WATER AND ENERGY COMPANY, INC.

07 Nov 1995
MOODY'S ASSIGNS Ba2 TO SENIOR SECURED NOTES OF CE CASECNAN WATER AND ENERGY COMPANY, INC. New York, 11-07-95 -- Moody's Investors Service assigned a Ba2 long-term debt rating to CE Casecnan Water and Energy Company, Inc. for its proposed issue of US$ 356 Million senior secured notes ($281MM) and senior secured floating rate notes($75 MM).
CE CASECNAN is a privately held Philippine corporation formed in 1994 to develop, construct, own and operate the project, a multipurpose irrigation and hydroelectric power facility (150 MW) located on the island of Luzon in the Philippines. The company is a subsidiary of California Energy Company, Inc. (CECI: senior rating Ba3) and Peter Kiewit Sons', Inc (Kiewit). CECI and Kiewit collectively own 70% of the company and Kiewit owns approximately 34% of CECI.
The Ba2 rating reflects the strong terms of the 20-year build-operate-transfer (BOT) contract with the Philippines' National Irrigation Administration (NIA), which guarantees minimum water and electricity fees covering approximately 70% of project's revenues, and provide base case average and minimum debt coverage ratios of 1.97 times and 1.45 times, respectively; minimal hydrology risk as the project is paid a guaranteed minimum fee for water and electricity regardless of actual deliveries; NIA's obligations to pay fees in all force majeure events other than those affecting only the tunnel and powerhouse, which are covered by business and catastrophic insurance; a buy-out provision in the BOT agreement which provides against changes in taxes, laws and regulations in the Philippines; and the automatic appropriation under Philippine law of NIA's obligations under the BOT agreement, which are also guaranteed by the performance undertaking from the Republic of the Philippines.
However, the rating recognizes the 4-year construction risk, which includes a 23-kilometers tunnel that will be bored at a depth of up to 1400 meters and crosses two known faults; the controversy surrounding the chairman of the Korean construction company's ( Hanbo Group) illegal political campaign contributions; and the project's reliance on the Philippines (senior rating: Ba2) to generate US dollars.
The debt issue will be sold in a privately negotiated transaction with subsequent registration under the Securities Act of 1933. The issuance has been designated to permit resale under 144A and Regulation S.
The project will consist of diversion weirs that will transfer water from the Casecnan and Denip rivers into a tunnel of 23 kilometers to the Pantabangan reservoir for irrigation and hydroelectric use in central Luzon. An underground powerhouse will be installed at the end of the tunnel to generate 150 MW of new capacity. The project will provide water sufficient to irrigate an additional 50,000 hectares of rice farmland that will help alleviate chronic rice shortages in the Philippines.
Construction of the 23-kilometer tunnel is a major risk as the contractor, You One, may encounter unexpected subsurface conditions that could delay project construction. However, the risk is well mitigated by the contractor's tunneling experience; a 100% guarantee from Hanbo Steel, the second largest steel company in Korea, and a $118 MM irrevocable letter of credit from Korea First Bank (senior rating: Baa1), which together provide 150% coverage of the construction contract ($236 MM). You One expects to complete the project in 45 months and the BOT contract provides six years plus any periods of extension due to events of force majeure to complete the project. Total project costs are estimated at $475 MM and CECI and Kiewit will contribute $118 million in equity (25%). During the operating period, even if low water conditions did not allow the project to earn any excess energy fees, the minimum fees paid by NIA would provide average and minimum debt coverage ratios of 1.45 times and 1.04 times respectively, not requiring drawing under the $40 MM debt service reserve. In addition, though the chairman of the Hanbo Group is involved in the controversy surrounding the former South Korean president's improper use of campaign contributions, the impact, if any, is not expected to effect Hanbo Corporation or Hanbo Steel's ability to fulfill their obligations under the turnkey contract since the Hanbo Corporation chairman limited his involvement to that of his private company, Hanbo Trading.
CE CASECNAN is a privately held corporation located in Manila, Philippines. California Energy Company, Inc. is an independent power developer located in Omaha, Nebraska.

No Related Data.
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