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Rating Action:

Moody's assigns Ba3 to ExGen Renewables I, LLC's first lien term loan; Outlook is stable

22 Jan 2014

Approximately $913 million of debt affected

New York, January 22, 2014 -- Moody's Investors Service today assigned a Ba3 rating to ExGen Renewables I, LLC's (ExGen Renewables or Holdco) $300 million first lien term loan. Concurrent with this rating assignment, Moody's also affirmed Continental Wind, LLC's (CW or Opco) Baa3 senior secured rating. The outlook is stable for both entities.

ExGen Renewables indirectly owns CW, which owns a 667 MW portfolio of thirteen operating wind projects spread over six states. All of the projects have long-term contracts with a cash flow weighted average life of 19 years and the projects reached commercial operations from 2008 through 2012. Suzlon/RePower, Vestas, Nordex, and GE supply the wind turbines. The respective original turbine manufacturer (OEM) provides operations and maintenance (O&M) for the wind turbines and these contracts have a cash flow weighted average life of over 9 years. ExGen Renewables is indirectly owned by Exelon Corporation (Exelon, Baa2-stable).

Proceeds from the debt offering will be used to pay a dividend to its owner and pay for transaction costs resulting in an estimated consolidated debt to total capitalization of around 78% using book equity as of September 30, 2013.

Summary Rating Rationale

Holdco's Ba3 rating reflects indirect ownership of Opco, which benefits from long-term off-take agreements with mostly creditworthy entities, long-term O&M agreements, and wind resource diversity with three strongly distinct wind regimes (five total). The Opco portfolio also enjoys technology diversity as well as having most of its plants located in states with renewable portfolio requirements. Additionally, Holdco benefits from the existence of certain project finance features including a 1st lien on stock and accounts, a 100% excess cash sweep, and an Exelon backed debt service reserve (DSRA) sized to 12 months.

That said, Holdco's rating also considers Opco's key risks including wind resource uncertainty, exposure to turbine OEMs with weak credit characteristics, some operational and curtailment issues, and concentration in Michigan representing around 62% of cash flows through Opco debt maturity. Additional risks applicable to ExGen Renewables are weak consolidated financial metrics under Moody's case, structural subordination, and likely refinancing risk. Holdco's structural subordination exposes Holdco lenders to greater potential loss given default given its subordination to $613 million of Opco debt and the possibility of no cash flow being available to service Holdco debt if Opco's restricted payment test is triggered. We view the liquidity provided by the 12-month DSRA as providing Holdco materially greater resiliency under stress situations such as a the triggering of Opco's restricted payment test.

Under Moody's cases, we expect consolidated DSCR in the 1.1x to 1.2x range and FFO/Debt in the 4% to 5% range. Holdco only financial metrics are stronger at 1.4x to 1.7x range for DSCR and 5% to 7% range for FFO/Debt. This forecast incorporates conservative assumptions including higher O&M and discounts to merchant price assumptions. Regarding energy production, we examined the P90 1-year scenario as well as the P90 10-year scenario given the existence of the 100% excess cash sweep. The borrower's base case (P50) has stronger financial metrics with consolidated DSCR of above 1.3x and consolidated FFO/Debt above 6%.

While very little debt remains at maturity under the borrower's base case, approximately 50% to 60% of the debt is outstanding under the Moody's cases examined. However, we view the refinancing risk as sufficiently mitigated given the combination of approximately 12 --years of remaining contracted cash flow after the Holdco debt maturity, the conservative assumptions incorporated in the Moody's cases, and the existence of a 100% excess cash sweep.

The Holdco financing results in a 50% increase in total consolidated debt, which is a credit negative for Opco. However, the rating affirmation considers the protections afforded to Opco creditors from ring fencing like mechanisms in place as well as the project finance protections, including the existence of a 1.2x restricted payments test and generally strict limitations on additional debt or assets. Further material increases in total leverage, a weakening of the ring fencing or deterioration of Holdco's credit quality are likely to have negative rating implications for Opco.

Key Credit Strengths

• Long term contracts with mostly strong off-takers and have fixed prices

• Thirteen projects spread across six states provide diversification benefits

• O&M contracts with OEMs contain warranties and minimum performance requirements that protect the Project against turbine underperformance

• Holdco is fully owned by a strong, investment grade rated sponsor

• Majority of the projects are located in states with renewable portfolio standards

• Holdco's project finance protections include 1st lien on stock, 100% excess cash sweep, and a 12-month DSRA

Key Credit Weakness

• Inherent wind resource volatility is a major driver of cash flow uncertainty, although several of the smaller wind farms have multiple years of operating history

• The Michigan-based projects provide roughly 62% of cash flow through Opco debt maturity that limits wind resource diversity

• Several of the wind farms are exposed to operational and curtailment issues

• Some of the off-take agreements have features which could result in reduced cash flow including limited or no curtailment compensation

• High consolidated leverage at approximately 78% and structural subordination of Holdco's debt to $613 million of Opco debt

• Low consolidated cash flow metrics under Moody's cases

Holdco and Opco's stable rating outlooks consider the durability and extended tenor of the contracted cash flow and the resulting financial performance at both levels under rather conservative assumptions in the respective Moody's cases over time.

Factors that could positively affect Holdco's rating include substantial debt reduction, strong operating performance at CW, and sustained consolidated financial metrics comfortably in the 'Ba' category. Factors that could positively affect the Opco's rating include elimination of Holdco debt, DSCR above 1.9x on a sustained basis, substantial improvement in OEM credit quality, and strong operational performance.

Factors that could result in negative rating action for Holdco or Opco include financial performance materially below our expectations, major operating problems or significant off-counterparty credit quality deterioration.

The rating is predicated upon final documentation in accordance with Moody's current understanding of the transaction and final debt sizing and model outputs consistent with initially projected credit metrics and cash flows.

The principal methodology used in this rating was Power Generation Projects published in December 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

ExGen Renewables indirectly owns CW, which owns a 667 MW portfolio of thirteen operating wind projects spread over six states. CW's plants benefit from long-term contracts and they reached commercial operations from 2008 through 2012. ExGen Renewables is indirectly owned by Exelon, a utility holding company that has both unregulated and regulated operations with approximately 34,700 MW of generation and more than 6.6 million regulated electricity and natural gas customers. In 2012, Exelon's revenues totaled $23.5 billion and assets totaled $79 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Clifford J Kim
Vice President - Senior Analyst
Project Finance & Infrastructure
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Chee Mee Hu
MD - Project Finance
Project Finance & Infrastructure
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba3 to ExGen Renewables I, LLC's first lien term loan; Outlook is stable
No Related Data.
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