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Rating Action:

Moody's Downgrades Buckeye Power; Outlook Negative

09 Nov 2010

New York, November 09, 2010 -- Moody's Investors Service today downgraded the ratings of Buckeye Power, Inc. (Buckeye), including all senior secured ratings one notch to A2 from A1, and the issuer rating to A3 from A2. At the same time Moody's downgraded the ratings of Buckeye's finance subsidiary, Buckeye Power Generating LLC (BPG) to Baa1 from A3. The rating outlook for both issuers remains negative.

Downgrades:

..Issuer: Buckeye Power, Inc.

....Issuer Rating, Downgraded to A3 from A2

..Issuer: Ohio Air Quality Development Authority

....Senior Secured Revenue Bonds, Downgraded to A2, from A1,

..Issuer: Ohio Water Development Authority

....Senior Secured Revenue Bonds, Downgraded to A2, from A1

..Issuer: Buckeye Power Generating LLC

....Issuer Rating, Downgraded to Baa1 from A3

....Senior Secured Bank Credit Facility, Downgraded to Baa1 from A3

RATINGS RATIONALE

Today's downgrade is a reflection of the steady deterioration in Buckeye's financial metrics over the last several years. This weakness was exacerbated by the company's debt financed acquisition of incremental coal-fired generating capacity in 2009 and the weak economy in the region that has been slow and sporadic in recovery. On two financial measures, funds from operations to debt and equity to capitalization, Buckeye's June 30, 2010 fiscal year-end results of 4.3% and 18.7% are notably below the low end of the "A" range for cooperatives (6-10% and 20-35%, respectively). An additional concern is the company's weak liquidity profile, consisting of several 364-day bilateral borrowing arrangements. The short-term nature of the external credit lines is not optimal in our view given our expectation for continued negative free cash flow after capital spending in 2011-2012.

The downgrade and continuing one-notch difference between the issuer ratings of Buckeye at A3, and BPG at Baa1, reflects the subordination of the debt issued by BPG to finance Buckeye's investment in Ohio Valley Electric Cooperative (OVEC). The cash flow to service the BPG debt is received from Buckeye under the terms of a purchased power agreement between the entities and as such, we view the rating of BPG as being linked to that of Buckeye. While the BPG investment in OVEC represents an important component of Buckeye's overall electric generating profile, the debt at BPG is not specifically guaranteed by Buckeye and as such could represent a junior claim relative to obligations under Buckeye's existing mortgage indenture.

Buckeye retains several strong credit attributes including its self-regulated rate-setting business model, the wholesale power contracts in place with its members through December 2057, its competitive wholesale electric rate, and its owned generating capacity that results in a low amount of purchased power to meet member needs. Nevertheless, we are maintaining the negative outlook at this time given the soft economy in the member service territories and our concerns that the company's metrics may not improve to levels in support of the current rating.

Buckeye's external liquidity profile is considered weak. From a collection of bi-lateral agreements, the company currently maintains $250 million of revolving credit availability. At September 30, 2010, approximately $105 million was drawn under the lines and cash on hand was approximately $2 million. None of the credit lines have terms greater than one year. As such, the company is expected to rely significantly on advances from RUS and other secured financings for terming out some of these short-term obligations. Any delay to this longer-term funding could have a negative impact on the rating.

Given the negative outlook an upgrade is unlikely in the near-term. The rating could be stabilized with improved liquidity and credit metrics in line with the "A" rating category (as outlined in Moody's U.S. Electric Generation and Transmission Cooperatives rating methodology). Adjustments to the company's current capital rotation policy would also be viewed as credit supportive. The rating could come under additional pressure if liquidity is constrained further or weak metrics continue including FFO to debt in the low single-digits and equity to capitalization below 20%.

Moody's last rating actions for Buckeye and BPG was on November 10, 2009, when the outlook was changed to negative from stable.

The principal methodology used in this rating was U.S. Electric Generation & Transmission Cooperatives published in December 2009.

Headquartered in Columbus, Ohio, Buckeye Power, Inc. is a not-for-profit electric generation and transmission cooperative owned by and supplying power to its 25 distribution cooperative members in the state of Ohio. Buckeye owns approximately 2,400 MW's of electric generating capacity and reported revenues of $538 million in 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
James O'Shaughnessy
Analyst
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's Downgrades Buckeye Power; Outlook Negative
No Related Data.
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