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30 Jul 2010
Approximately $ 225 million of debt securities affected
New York, July 30, 2010 -- Moody's Investors Service has revised DTE Energy Center, LLC's
(DTEEC) outlook to stable from negative. The Ba3 rating has been
affirmed. The outlook revision and rating affirmation follow the
assignment of the eighth and final Utility Service Agreement (USA) to
the new Chrysler Group LLC (Chrysler) by the former offtaker, Utility
Assets LLC, (UALLC) a wholly-owned subsidiary of OldCarCo,
the new name for the former Chrysler LLC, which remains in bankruptcy.
The other seven USAs had been previously assigned to Chrysler on October
8, 2009. The eighth USA relates to the Sterling Heights Assembly
Plant (SHAP) and was initially expected to be terminated upon the planned
shutdown of SHAP in 2011. Upon termination of the USA, a
termination payment would have been payable. The negative outlook
was primarily related to the expectation that OldCarCo would unable to
make the termination payment due to its bankruptcy coupled with uncertainty
regarding Daimler North America Holding Corporation's willingness
to fulfill its obligations under its guarantee of UALLC and Chrysler's
respective obligations under the USAs, including their obligations
to make termination payments. Daimler North America is a subsidiary
of Daimler AG (sr. unsec. A3 with a negative outlook),
the former owner of Chrysler's predecessor.
Following Chrysler's decision to purchase SHAP from OldCarCo,
the SHAP USA was assigned to Chrysler on March 25, 2010.
Because of the assignment, if and when SHAP is shut down,
any termination payments related to the SHAP USA will now be an obligation
of Chrysler. This obligation continues to be guaranteed by Daimler
North America . However, there remains some uncertainty regarding
Daimler North America's willingness to fulfill its obligations under
the guarantee in Moody's opinion. Moody's notes that
Daimler North America has no economic interest in Chrysler or the project
any longer and when DTEEC filed a claim for a termination payment against
it, Daimler North America rejected the claim arguing that it had
been improperly filed. Though Chrysler's business prospects
may remain challenged, it is not in bankruptcy and is legally obligated
to make any termination payments due under the USAs. As a result,
while there is still a possibility that Daimler North America will be
called upon at some point to make a termination payment, this is
no longer the near certainty that it appeared to be when the offtaker
was a bankrupt entity.
Because of the specialized purpose of DTEEC's assets and the pass-through
nature of the USAs, the project is inextricably linked to the credit
quality of the off-taker and guarantor. Given the off-taker's
expected weak credit quality, the guarantee is the only form of
credit strength remaining in the transaction and is fundamental to the
Ba3 rating. Under the guarantee, which constitutes an unconditional
and irrevocable full recourse, senior unsecured obligation of Daimler
North America, Daimler North America guarantees the obligations
of UALLC and OldCarCo and their successors and permitted assigns.
However, the document is silent on what constitutes a permitted
assign and does not address whether Daimler North America has any consent
rights regarding said assignment. The project has not received
an explicit acknowledgement from Daimler North America that it remains
bound by its obligations under the guarantee following the assignment.
While the project is not required to obtain, nor is Daimler North
America required to provide, such an acknowledgement, the
absence of one heightens the uncertainty as to whether Daimler North America
will agree to fulfill any future demands made of it under the guarantee
in our opinion.
DTEEC's termination payment demand followed the bankruptcy of UALLC and
Chrysler. DTEEC asserted that UALLC's bankruptcy constituted an
automatic termination event under the service agreements. Because
DTEEC was precluded from filing notice of termination against or making
a demand for a termination payment from UALLC by the automatic stay,
it demanded the termination payment directly from Daimler North America.
Moody's notes that Daimler North America did not dispute its ultimate
obligation to make termination payments under the guarantee. Rather,
it asserted that to-date the USAs were not properly terminated
and therefore it was not obligated to make any such payments. Daimler
North America paid all the claims made against it for UALLC's pre-petition
payables, which totaled approximately $1.6 million.
The rating also considers the implications of a lawsuit Old CarCo's creditors
have filed against Daimler for fraud, asserting that Daimler illegally
transferred billions of dollars worth of assets to itself from the former
Chrysler prior to its sale of the former Chrysler to Cerberus Capital
in 2007. The lawsuit remains ongoing. In Moody's opinion,
the litigious and antagonistic environment created by this lawsuit increases
the risk that Daimler North America may seek to dispute future claims
made against it under the guarantee, particularly in light of its
lack of any ongoing economic interest in the transaction.
The stable outlook reflects Moody's expectation that the project's
operating and financial performance will remain sound unless Chrysler
is forced to reenter bankruptcy. If this were to occur, however,
the rating could further downward pressure. The rating is unlikely
to be upgraded until Chrysler firmly reestablishes itself on sound financial
The last rating action was on August 31, 2009, when DTEEC
's Ba3 rating was confirmed and its outlook revised to negative.
DTEEC 's rating was assigned by evaluating factors believed to be relevant
to the credit profile of the issuer 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 both within and outside of DTEEC's
core peer group and DTEEC's rating is believed to be comparable to ratings
assigned to other issuers of similar credit risk.
Headquartered in Ann Arbor, MI, DTEEC is owned by subsidiaries
of DTE Energy Company (DTE: senior unsecured Baa2, stable
outlook) and The Goldman Sachs Group, Inc. (senior unsecured
A1, negative outlook), each of which holds a 50% interest.
DTEEC is a special purpose company created to own and operate various
utility-related assets acquired from Chrysler's predecessor.
The assets are located within eight of Chrysler's manufacturing facilities
in the United States and provide critical support services for vehicle,
part, and component manufacturing operations. DTEEC entered
into separate 20-year USAs for each facility with Chrysler.
The USAs are structured to provide DTEEC with protection from certain
events outside its control, including Chrysler's decision to close
or sell any of the manufacturing facilities or extended force majeure
events. The protection takes the form of required termination payments
from Chrysler, which would be lump sum payments due within ten days
in amounts at least equal to the amount of debt associated with the affected
system. Daimler North America guarantees Chrysler's payment
and performance obligations under the service agreements, including
the obligation to make termination payments.
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
Moody's revises DTE Energy Center's outlook to stable
No Related Data.
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