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Rating Action:

Moody's upgrades Solar Star's senior secured bonds to Baa2 from Baa3. Outlook is positive.

23 Oct 2017

Approximately $1.29 billion of bonds affected

New York, October 23, 2017 -- Moody's Investors Service, ("Moody's") upgraded Solar Star Solar Funding, LLC's (Solar Star) senior secured bonds to Baa2 from Baa3. The rating outlook is positive.

RATINGS RATIONALE

The upgrade of Solar Star's rating to Baa2 from Baa3 takes into consideration strong sponsor support shown by Berkshire Hathaway Energy Company (BHE, A3 stable) as a world class sponsor that has invested almost $1.2 billion of common equity into Solar Star. The large amount of invested equity results in a debt to total capital ratio of around 54% as of June 2017 that is substantially lower than similar contracted power projects with fully amortizing debt. In 2016, BHE demonstrated its support when it acted quickly to source replacement transformers, which was partially funded with equity.

The rating upgrade to Baa2 also reflects the demonstrated low volatility of solar photovoltaic (PV) power plants as further described in Moody's sector-in-depth titled 'Solar Outshines Wind and Hydro Power with Steadier Output' that found solar PV plants had half the volatility of wind power plants. While solar PV plants in general have low volatility, we recognize Solar Star encountered operational problems in 2016 owing to the transformer related outages. For the trailing twelve months ending June 2017, Solar Star had a debt service coverage ratio (DSCR) of almost 1.30x, which was an improvement relative to the less than 1.1x DSCR for full year 2016. Transformer outages in 2016 caused these low financial metrics and we expected Solar Star's DSCR will improve to the 1.40 to 1.60x range with the lower end commensurate with a P90 level of power generation. Our expectations for improved financial performance are supported by the project's power generation that is well above the original Moody's Case forecast for the last twelve months ending September 2017. Moreover, we recognize the original financing conservatively incorporated rising DSCR that reaches 1.70x and higher after 2031.

Solar Star's Baa2 rating further considers its long-term contract with Southern California Edison Company (SCE, A2 stable), strong support for renewables in California, and traditional project finance enhancements such as a 1st lien on assets, a 6-month debt service reserve, and a 1.20 times dividend distribution test. However, the project's reliance on SunPower Corporation (SunPower, unrated) for long-term equipment warranties and operations and maintenance (O&M) services is viewed as a weakness given SunPower's speculative grade credit characteristics.

The positive rating outlook reflects the likely further improvement to the project's credit quality to the extent Solar Star can demonstrate improved financial performance and manages unexpected events like the recent wildfires in northern California.

The Project's rating could be upgraded if Solar Star continues to demonstrate improved financial and operating performance resulting in DSCR at the upper end of the 1.40x to 1.60x DSCR range over the next year assuming normal solar insolation.

Given the positive outlook, Solar Star's rating is unlikely to decline. However, Star Star's rating could decline if the project incurs major operational problems, the offtaker's credit quality severely declines or if Solar Star's DSCR is below 1.40x on a sustained basis.

Solar Star Funding, LLC is an indirect wholly-owned subsidiary of BHE formed to own 586 MWac of photovoltaic solar generating facilities in Kern and Los Angeles Counties, California. The Project is comprised of two separate facilities, the 310 MWac, SS1 and the 276 MWac SS2 both of which were initially developed by SunPower Corporation, and acquired by BHE in December 2012. As of September 30, 2017, the project had $1.29 billion of senior secured bonds outstanding.

The principal methodology used in these ratings was Power Generation Projects published in May 2017. Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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: 1 212 553 0376
Client Service: 1 212 553 1653

A.J. Sabatelle
Associate Managing Director
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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