MOODY'S INVESTORS SERVICE COMMENTS ON RATINGS OF PROJECT FINANCED ISSUERS EXPOSED TO COUNTERPARTY RISK OF CALIFORNIA UTILITIES
Moody's Investors Service commented that it is maintaining the ratings of six project financings with exposure to the California power market. They are:
· Caithness Coso Funding Corp., senior secured notes due 2001 and 2009 rated Caa2
· Edison Mission Energy Funding Corporation, senior unsecured debt rated Caa2
· FPL Energy Caithness Funding Corporation, senior unsecured debt rated Caa2
· Juniper Generation LLC, senior secured rated Caa2,
· Salton Sea Funding Corporation, senior secured rated Caa2, and
· CE Generation LLC, senior secured debt rated B1
All of these ratings were downgraded to their current levels in January 2001 in conjunction with the downgrading of Southern California Edison Company (SCE) and Pacific Gas and Electric Company to Caa2 following SCE's default on a note and its power exchange payments.
Caithness Coso, Edison Mission Energy Funding and FPL Energy Caithness Funding all sell power to Southern California Edison Company (SCE) under "qualifying facility" (QF) contracts. Projects owned by Juniper Generation sell most of their output under QF contracts with Pacific Gas and Electric Company.
Salton Sea sells its output under a QF contract with SCE. However, Salton Sea has successfully obtained court relief to temporarily sell its output to other generators given SCE's failure to pay its bills. In the case of CE Generation, a holding company, approximately 60% of its cash flow is provided by non-California sources, with the remainder coming from Salton Sea.
Moody's believes that Pacific Gas & Electric Company's bankruptcy filing on Friday, April 6, 2001 adds uncertainty about the ability of the qualifying facilities to be paid amounts sufficient to continue operation and increases the near-term possibility of an SCE bankruptcy filing. The California Public Utilities Commission order, issued on March 27, 2001, requires both Pacific Gas & Electric and SCE to commence payment on their QF contracts beginning on April 16, 2001. While SCE has indicated that they intend to make required QF payments, Pacific Gas and Electric Company has not indicated what amount they would pay to qualifying facilities, and any payment must now be approved by the bankruptcy court. Moody's believes that the bankruptcy court will allow Pacific Gas and Electric to make payments to qualifying facilities given their importance to the state. Likewise, Moody's believes that the facilities under contract with SCE will receive payment from the utility or alternatively, from the wholesale power market.
As these issues develop, Moody's intends to analyze each of the projects on a case-by-case basis depending on the final circumstances for each of the projects. To the extent that these projects receive sufficient cash flow to service all obligations including future debt service, the ratings of these projects could be upgraded from the current levels, but in all likelihood, such upgrade would be tempered by the rating of the counterparty. However, in light of the uncertainty surrounding the outlook for the energy markets in California coupled with the real possibility of an SCE bankruptcy, Moody's intends to maintain the current rating for each of these projects.
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