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17 May 2010
Approximately $99.5 million of rated debt affected
New York, May 17, 2010 -- Moody's Investors Service has downgraded Trans Bay Cable, LLC's
(TBC) $99.5 million in senior secured bank credit facilities
to Baa3 from Baa2. The facilities consist of approximately $87
million under the Tranche A senior construction facility and roughly $12.2
million under the Tranche D-1 working capital facility.
The downgrade reflects extended delays in project completion; a reinstatement
of a Notice of Default by the lender, Bayerische Landesbank (BLB);
and tight liquidity with the sole source of cashflow provided by delay
liquidated damages (LDs) payments and reliance on the willingness of the
sponsor/owner to continue funding the project as needed. The rating
also reflects written assurances that the sponsor has approved additional
capital commitments to subsidize LD payments that would be sufficient
to cover project costs, including debt service. The outlook
The Trans Bay Cable Project is a 53-mile, 400MW, high-voltage
direct-current submarine transmission line in the San Francisco
Bay. The project originally expected to conclude construction and
commissioning and commence commercial operations (COD) on or around March
20, 2010, however the project is now only likely to reach
COD by the last quarter of 2010 due to an unexpectedly high failure rate
of power modules during commissioning. While the project is 99.9%
complete and has demonstrated the ability to transmit electricity at 400MW,
the power modules located in the converter halls that convert alternating
current electricity to direct current electricity, and vice versa,
were failing at higher than anticipated rates due to a circuit board component
located on the modules. Siemens, the EPC contractor,
acknowledged responsibility and is currently working toward replacing
the circuit board component with a higher grade component than is currently
in place. Siemens is also liable for liquidated damages (LD) for
delay, in an amount sufficient to cover a majority of TBC's
monthly obligations including interest and swap payments. Principal
payments do not start until term conversion which is effectively simultaneous
with COD. Funding from the sponsor SteelRiver Infrastracture Fund
North America (SRIFNA) is the last resort for any balance due.
Current forecasts indicate a roughly $6.5 million shortfall
through to December 2010. SRIFNA has provided Moody's written
assurance that additional equity support has been approved through September
above and beyond the Siemens LD payments. SRIFNA has committed
over $140 million to the project to date and the fund has undrawn
commitments available for further use, if needed.
As Moody's noted in a Special Comment on November 10, 2009,
BLB stopped construction funding of the project in July 2009 due to their
claim of a technical default. While TBC disputed the claim,
BLB had the right to accelerate the debt, which would cross-default
to subordinated debt of approximately $181 million at the TBC level
(unrated by Moody's) and to charge post-default rates among
other remedies. BLB later agreed to waive their Notice of Default
claim pending an anticipated refinancing. Given the delays in construction
and expected delay in refinancing, BLB reinstated their claim on
May 5, 2010. TBC again disputed BLB's claim.
There remains considerable uncertainty between the parties.
The negative outlook reflects pressure for TBC to refinance the existing
debt facilities. Failure to convert the construction loans to term
loans by March 20, 2011 is a default under the Senior Loan Agreements
(we note that term conversion can be extended out until September 2011
pursuant to agreement amongst all the parties). With an expected
six month delay, TBC will have only 6 months remaining in order
to refinance the project.
Trans Bay Cable LLC (TBC) was established on January 14, 2004 as
a development entity for the Trans Bay Cable project. Following
a management sale by Babcock & Brown Pty Ltd in June 2008, TBC
is now indirectly, 100% wholly-owned by SteelRiver
Infrastructure Fund North America (SRIFNA). SRIFNA consists of
private and public pension funds and has approximately $1.9
billion in commitments, including the Trans Bay Cable Project.
The last rating action was on June 12, 2009 when Moody's published
the underlying ratings to the credit facilities.
TBC's ratings were assigned by evaluating factors believed to be relevant
to the credit profile of TBC such as: i) the business risk and competitive
position of the issuer versus others within its industry or sector,
ii) the capital structure and financial risk of the issuer, iii)
the projected performance of the issuer over the near to intermediate
term, and iv) the issuer's history of achieving consistent operating
performance and meeting budget or financial plan goals. These attributes
were compared against other issuers within and outside of TBC's core peer
group and TBC's ratings are believed to be comparable to ratings assigned
to other issuers of similar credit risk.
Infrastructure Finance Group
Moody's Investors Service
Moody's downgrades Trans Bay Cable to Baa3 from Baa2; outlook negative
Chee Mee Hu
Infrastructure Finance Group
Moody's Investors Service
No Related Data.
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