$370 million of debt affected
New York, November 10, 2010 -- Moody's Investors Service has assigned a Ba2 rating to the $370
million senior secured term loan due 2017, for Race Point Power.
The rating outlook is stable.
The Borrowers will actually consist of four individual holding companies
that will be the indirect owners of equity interests in a portfolio of
power projects in the US and Spain that are currently held indirectly
by three separate funds of ArcLight Capital Partners, LLC ("ArcLight").
The Borrowers are Race Point Power II LLC, Race Point Power III
LLC, Race Point Power IV LLC (the "US Borrowers") and
NeoElectra Lux S.àr.l, the last of which is
the Borrower in respect of the Spanish power assets (the "Euro Borrower"
and together with the US Borrowers, the "Borrowers"
or "Co-Borrowers"). Obligations of the Borrowers
will be joint and several with respect to all obligations under the term
loan. The $370 million senior secured term loan facility
will be allocated to a US dollar-denominated tranche (the "Dollar
Tranche") and a euro-denominated tranche (the "Euro
Tranche"), in amounts that are still to be determined.
Each US Borrower will be entitled to borrow a portion of the Dollar Tranche
up to an agreed cap for such US Borrower. All the proceeds of the
Euro Tranche will be borrowed by the Euro Borrower.
Proceeds from the transaction will be used (i) to refinance existing indebtedness
(at existing holding company levels above the projects in order to simplify
the capital structure); (ii) to acquire the remaining 50%
interest of Crawfish (one of the US projects); (iii) to pay related
transaction fees and expenses; (iv) for general corporate purposes,
including permitted dividends; (v) to fund a liquidity and capex
reserve to fund various project accounts; (vi) to fund a Lea Power
reserve account and (vii) to cash collateralize permitted LCs or alternatively,
ArcLight will post a letter of credit. The portfolio consists of
8 power generation investments with a total of 24 power plants throughout
the US and Spain. The portfolio is composed of approximately 1,412MWs
of combined generation capacity, with net ArcLight ownership totaling
1,272MWs. The assets are located in Connecticut, Maine,
Michigan, Nevada, New Mexico, Pennsylvania, Texas
and Spain. ArcLight has majority-owned stakes in 6 of the
8 investments and 100% ownership in 5 investments. There
is project level debt at 6 of the 8 investments.
ArcLight is a private equity investment firm founded in 2001 focused exclusively
on the power and energy sectors. ArcLight has approximately $6.8
billion under management, with over 6,000 net MWs in operation
or construction across its four funds. ArcLight owns a diverse
portfolio of companies in the power generation, transmission and
distribution, midstream and upstream sectors.
The rating primarily reflects: (a) the diversity of a portfolio
of 8 power projects in the US and Spain; (b) the largely contracted
nature of the portfolio (90% of cash flows are contracted),
which provides stable cash flows through long-term power purchase
agreements, primarily with investment grade counterparties;
and (c) the strong operating histories of the generation projects with
commercially proven technologies. However, the recommendation
also considers: (i) the high consolidated leverage that includes
project level debt associated with the underlying project assets;
(ii) regulatory risk and potential for changes to the regulated tariff
structure in Spain as approximately 44% of cash flows come from
projects at NeoElectra in Spain; (iii) refinancing risk; and
(iv) the structurally subordinated position of the holding companies'
The Ba2 senior secured rating for the Borrowers considers the following
1) Diversified portfolio with five different primary fuel types (natural
gas, hydro, diesel, waste coal and biomass) located
across seven states and Spain
2) 90% of the cash flows are contracted
3) Diversified set of offtakers make up of PPAs with nine different entities,
eight of which are investment grade
4) All Projects have solid availability factors and are operated and maintained
by known and experienced service providers including CAMS, Dynegy,
Terra-Gen and Cogentrix
5) Majority owned stakes in 6 of the 8 investments and 100% ownership
of 5 projects, thereby providing for a high degree of operational
and management control by ArcLight
The rating also reflects the following areas of credit concern:
1) High consolidated leverage
2) Regulatory risk as about 44% of the cash flows are coming from
the projects at NeoElectra in Spain
3) The structurally subordinated position of the lenders to the holding
company, in relation to existing debt at 6 of the 8 projects totaling
approximately $440 million
4) Refinancing risk when the credit facility matures at the end of 2017,
leaving about $133 million outstanding (35% of the original
amount) in Moody's base case
5) Modest foreign exchange risk due to the Spanish projects; the
joint and several nature of the obligations mean that the US dollar cash
flows may be needed to support the Euro Tranche should there be a shortfall
in the euro cash flows, and vice versa
6) Average age of the plants (10 years) potentially increases the operating
risk over time.
The credit facilities will be secured on a pari passu basis by a first
priority perfected security interest in substantially all assets of the
Co-Borrowers (and their respective unencumbered wholly-owned
subsidiaries), including cash distributions from each of the projects,
the Co-Borrowers' equity interests in each of their direct
or indirect subsidiaries (except to the extent prohibited by the terms
of financing documents entered into at the project level, applicable
law or the related project documents), all Co-Borrowers accounts,
and the equity interests of the parent holding companies of each of the
Borrowers (collectively, the "Holding Companies") in
the Co-Borrowers. All obligations under the Facility will
also be unconditionally guaranteed by each direct or indirect subsidiary
of the Co-Borrowers (except to the extent prohibited by the terms
of financing documents entered into at the project level or the related
project documents) and each of the Holding Companies.
Moody's also considered structural features in the term loan agreement,
including a cash sweep in years 1-4 equal to the greater of (i)
75% of excess cash flow after scheduled debt service and (ii) an
amount required to achieve a target debt balance, and a cash sweep
in years 5-7 of 100% of excess cash flow. The transaction
provides for only a 1% required annual amortization, with
additional amortization to be based upon the cash flow sweep mechanism.
There is also a 6 month debt service reserve covering forward interest
and scheduled debt service via cash or a letter of credit to be provided
by ArcLight, a $13.4 million liquidity and capex reserve
account, a $10 million reserve account in respect of the
Hobbs Facility and a set of financial and other covenants that restrict
the business and financial activities of the Borrowers.
The stable outlook reflects the expectation that the portfolio of projects
will generate relatively stable and predictable cash flows, since
the cash flows are derived from long term contracts with largely investment
grade counterparties. The outlook also assumes the near term stability
in the credit quality of the project off-takers and anticipates
that the projects will continue to be operated in a manner that allows
them to perform as expected.
Positive trends that could lead Moody's to consider an upgrade would include
a more rapid pay down of the project level debt than currently projected
and better than projected base case financial performance. Negative
trends that could lead Moody's to consider a downgrade would include credit
deterioration by key contractual off-takers, substantial
operating performance difficulties that result in a meaningful loss of
cash flow available for debt service, significant changes to the
regulated tariff structure in Spain that is detrimental to the cash flows
at NeoElectra, and financial performance that is consistently below
The rating is predicated upon final documentation in accordance with Moody's
current understanding of the transaction and final debt sizing consistent
with initially projected credit metrics.
The Co-Borrowers are special purpose entities formed by ArcLight
Capital Partners, LLC to hold its interests in a portfolio consisting
of 8 power projects in the US and Spain totaling 1,272 MWs of net
The principal methodology used in this rating was Power Generation Projects
published in December 2008.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and
confidential and proprietary Moody's Analytics information.
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on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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Richard E. Donner
VP - Senior Credit Officer
Project Finance Group
Moody's Investors Service
Chee Mee Hu
MD - Project Finance
Project Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba2 to Race Point Power Sr. Sec. Term Loan
250 Greenwich Street
New York, NY 10007