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Rating Action:

Moody's upgrades Topaz Solar's senior secured bonds to Baa1 from Baa2. Outlook is positive

23 Oct 2017

Approximately $1 billion of bonds affected

New York, October 23, 2017 -- Moody's Investors Service, ("Moody's") upgraded Topaz Solar Farm, LLC's (Topaz or Project) senior secured bonds to Baa1 from Baa2. The rating outlook is positive.

RATINGS RATIONALE

The upgrade of Topaz's rating to Baa1 from Baa2 takes into consideration continuing strong sponsor support shown by Berkshire Hathaway Energy Company (BHE, A3 stable) as a world class sponsor who has invested around $1 billion of common equity into the project. The large amount of invested equity results in a debt to total capital ratio of around 51% as of June 2017 at Topaz, which is substantially lower than similar contracted power projects with fully amortizing debt. Recently, BHE's demonstrated its support when it contributed funds to the project to allow an upfront payment to the project's offtaker in exchange for eliminating the project's letter of credit (LC) collateral posting requirement. This arrangement should result in cost savings for the project and ultimately modestly higher debt service coverage ratios than the original base case forecast all else equal.

The rating upgrade to Baa1 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. For Topaz specifically, the project has demonstrated strong financial and operational performance since final construction completion in 2015. We estimate Topaz had debt service coverage ratio (DSCR) above 1.70x for the last twelve months ending June 2017 according to Moody's standard calculations and the project has averaged DSCR above 1.80x since commercial operations which is stronger than the 1.60x DSCR expected by Moody's. The financial performance has been supported by stronger than expected power production relative to the original P50 forecast and the conservatism incorporated into the original debt sizing. On a look forward basis, we expect Topaz's DSCR to range from 1.60x to 1.80x with performance likely at the higher end of the range especially since the Project should the benefit from LC fee savings and the original financing incorporated a conservative structure with rising DSCR over time that goes to 2.0 times DSCR or above by 2034.

Topaz's Baa1 rating further considers its long-term contract with Pacific Gas & Electric Company (PG&E, A2 Stable), strong support for renewables in California, use of proven technology, 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 First Solar, Inc. (First Solar, unrated) for long-term equipment warranties and operations and maintenance (O&M) services is viewed as a weakness given First Solar's speculative grade credit characteristics.

The positive rating outlook reflects the likely further improvement to the project's credit quality to the extent it can continue to demonstrate strong financial performance in the face of unexpected events like the recent wildfires in northern California.

The Project's rating could be upgraded if Topaz continues to demonstrate strong financial and operating performance resulting in DSCR at the upper end of the 1.60x to 1.80x range over the next year assuming normal solar insolation.

Given the positive outlook, Topaz's rating is unlikely to decline. However, Topaz's rating could decline if the project incurs major operational problems, PG&E's credit quality declines to below Baa1 or if Topaz's DSCR is below 1.50x on a sustained basis.

Topaz Solar Farms LLC (Topaz), an indirect subsidiary of Berkshire Hathaway Energy Company (BHE, A3 stable), is a 550 MWac thin-film photovoltaic solar generating project in San Luis Obispo County, California. The project was acquired in 2012 from First Solar, Inc. (First Solar), who completed construction and remains responsible for project operations and maintenance. Output from the project is sold to PG&E under a 25-year power purchase and sale agreement (PPA).

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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