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Rating Action:

Moody's assigns Baa3 to Continental Wind's senior secured bonds; Outlook stable

05 Sep 2013

Approximately $635 million of debt securities affected

New York, September 05, 2013 -- Moody's Investor Service today assigned a Baa3 rating to Continental Wind, LLC (CW or Project) $635 million of senior secured bonds due 2033. The outlook is stable.

Proceeds from the debt offering will be used to pay a substantial dividend to its owner and pay for transaction costs. Post financing, debt to total capitalization is estimated at 55%. In addition to the bonds, the Project is expected to have a $10 million senior secured working capital facility and a $132 million senior secured letter of credit facility to backstop various reserve and collateral posting requirements.

Rating Rationale

CW's Baa3 rating reflects the benefit of long term off-take agreements with mostly creditworthy entities, debt service coverage ratios (DSCR) averaging around 1.77x under the management base case, long-term operations and maintenance agreements (O&M) with a cash flow weighted average of around 9 years, and a strong project sponsor. Under a more conservative forecast scenario utilized by Moody's, the project is forecasted to have an average DSCR of 1.40x over the life of the financing. Additional credit strengths include wind resource diversity with three strongly distinct wind regimes (total of five wind regimes), technology diversity, and state renewable portfolio requirements in most states representing over 85% of cash flows. Bondholders further benefit from mostly traditional project finance protections.

That said, the Baa3 rating also considers the exposure to several original turbine manufacturers (OEM) with weak credit characteristics, a history of operational and curtailment issues at some assets, and inherent wind resource uncertainty. Another constraining factor for the rating is the high cash flow concentration since the Michigan-based wind farms provide around 60% of cash flows. Additionally, debt service and O&M reserves are provided by letters of credit that are recourse to the Project, which we view as a credit weakness.

Key Credit Strengths

• Long term contracts are 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

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

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

• Strong forecasted financial metrics with management base case DSCR of 1.77x and Moody's case DSCR of 1.40x

• Project finance protections include 1st lien on assets, debt service reserve (DSRA) sized to 6-months plus $5 million, 6-month O&M reserve, and 1.2x forward and backward looking DSCR test for equity distributions

Key Credit Weakness

• Several of the major OEMs are under financial stress and of weak credit quality

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

• The DSRA and O&M reserves are backed by letters of credit that are recourse to CW

• The Michigan-based projects provide roughly 60% of cash flow 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

For a detailed analysis of the project, please refer to the Pre- Sale Report that will be published under the issuer's name on www.moodys.com.

CW's stable outlook considers expected DSCR of at least 1.4x, generally strong off-taker credit quality, and operating performance consistent with the forecast.

Factors that could positively affect the rating include achieving a DSCR that is above 1.9x on a sustained basis, substantial improvement of OEM credit quality, and strong operational performance.

Factors that could result in a negative rating action include financial performance materially below expectations, major operating problems or significant 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.

CW 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 approximately 19 years and the projects reached commercial operations from 2008 through 2012. Suzlon/RePower (21% share of cash flow), Vestas (44% share), Nordex (17% share), and GE (17%) supplied the wind turbines, and O&M for the wind turbines is provided by the respective OEM.

CW is indirectly owned by Exelon Corporation (Exelon, Baa2-stable) which is 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.

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.

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 Group
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 Group
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 Baa3 to Continental Wind's senior secured bonds; Outlook stable
No Related Data.
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