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Global Credit Research - 22 Jul 2010
Approximately $850 Million of Debt Securities Affected.
New York, July 22, 2010 -- Moody's Investors Service affirmed Firstlight Power's (FLP) B1 and
B3 rating on its 1st lien and 2nd lien credit facilities and also affirmed
Firstlight Hydro's (FLH) Ba3 rating on senior secured bonds.
The rating outlook continues to be negative.
The rating affirmation reflects the ongoing support of Firstlight Power's
owner, GDF Suez North America (GDF NA), totaling $120
million of equity injections through the end of March 2010. GDF
NA is a subsidiary of French energy company GDF Suez SA (senior unsecured:
Aa3-negative outlook). Additionally, FLP benefits
from continued integration with GDF NA's subsidiaries. For
example, FLP's hedging activities are now conducted through
GDF Suez Energy Marketing NA, GDF NA's marketing operations,
that reduces collateral and liquidity requirements at FLP. Given
the demonstrated support to date, Moody's expects GDF NA to
continue to support FLP though Moody's does not view such support
as being unlimited and some uncertainty remains.
That said, the negative outlook reflects the recent extended outage
at the Northfield Mountain facility. The scheduled outage was initially
expected to be completed by late May, however, during the
scheduled outage, FLP discovered a significant quantity of silt
had migrated to the intake channel and into the pressure shaft intake
structure. The silt is in the process of being removed and Northfield
Mountain is expected to be operational in August. The $20
million incremental cost of the extended outage is expected to be covered
by GDF NA.
The negative outlook also incorporates FLP's low consolidated credit
metrics with consolidated debt service coverage ratio of 1.06 times
and FFO/Debt of 7.7% in 2009 according to Moody's
calculations. According to FLP's 2010 budget, consolidated
DSCR are expected to drop moderately below 1.0 times and FFO/Debt
is likely to be around 5% which is well below the original base
case forecast of 14% FFO/Debt and 1.9 times DSCR for 2010.
The key drivers of the low metrics are lower merchant cash flows and higher
capital expenditures. FLP's weaker than expected performance
has also resulted in potential leverage ratio covenant violations which
were cured or avoided by equity contributions by GDF NA. Moody's
expects FLP's metrics through loan maturity will be well below original
base case forecasts and roughly commensurate with the 2010 budget.
Lastly, the negative outlook considers the recent announcement by
GDF SUEZ SA that it is in preliminary discussions with International Power
regarding a possible combination of International Power (IP) and GDF SUEZ
Energy International Business Areas (outside Europe) and certain assets
in the UK and Turkey (GDF SUEZ Energy International). The potential
transaction adds some uncertainty that sponsor support will continue since
limited information exists at this time regarding this transaction.
The negative outlook could be resolved once Northfield Mountain returns
to full operation, FLP executes new long term contracts, permanently
resolves the potential for future covenant violations and improves its
consolidated credit metrics. Additionally, the negative outlook
could be resolved once there is greater clarity regarding the potential
The rating is likely to move down if FLP's standalone consolidated
credit profile declines further, if the projects incur additional
operational problems, if credit metrics weaken substantially or
if covenants are violated. The ratings could drop multiple notches
if GDF NA reduces or eliminates its support.
FirstLight Power Resources, Inc. owns and operates 1,442
MW of merchant based electric generating facilities located in Connecticut
and Massachusetts. FLP's wholly-owned subsidiary FirstLight
Hydro Generating Company, owns 1,296 MW (out of FLP's
1,442 MW) of predominately hydroelectric generating facilities including
two pumped storage hydro units, eleven conventional and run-of-river
hydro units, and one internal combustion peaking facility.
FLP's portfolio also includes a 146 MW coal-fired generating station
(Mt. Tom) held in a separate subsidiary. FLP is indirectly
owned by GDF Suez North America, a subsidiary of French energy company
GDF Suez SA.
The last rating action on FLP and FLH occurred on May 29, 2009,
when the rating outlook was changed to negative from stable.
The principal methodology used in rating this issuer was Power Generation
Projects, which can be found at www.moodys.com in
the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Clifford J Kim
Asst Vice President - Analyst
Project & Infrastructure Finance
Moody's Investors Service
Chee Mee Hu
MD - Project Finance
Project & Infrastructure Finance
Moody's Investors Service
Moody's affirms Firstlight Power and Firstlight Hydro's ratings and maintains negative outlook.
No Related Data.
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