Fitch Ratings has downgraded to 'C' from 'CC' the rating on Northampton Generating Company, L.P.'s (Northampton) $153 million senior tax-exempt series 1994 A resource recovery revenue bonds due 2009 to 2019. The debt was issued by the Pennsylvania Economic Development Financing Authority in 1994 and the proceeds loaned to Northampton.
The rating downgrade is due to Fitch's expectation that absent a restructuring or external funding, a payment default is inevitable. The project's trustee notified Northampton of a technical default due to its failure to pay fully its third quarter portion of annual debt service. Fitch does not expect the shortfall to be eliminated with cash from operations in the fourth quarter. Fitch downgraded the rating on Northampton's senior bonds to 'CC' in September 2008. At that time, Fitch noted that a draw on the reserve fund was expected for 2010 and possibly in 2009. Updated financial projections from the sponsor now indicate that the six-month senior bond debt service reserve will need to be drawn upon in order to make the next debt service payment scheduled for January 2010. Future debt service coverage ratios are expected to be even lower than previously projected, remaining below break-even levels through maturity of the debt. Fitch expects the senior bond debt service reserve to be depleted no later than 2012.
Northampton's performance has been worse than expected due primarily to failure to achieve projected fuel costs and operating and maintenance expenses. Prior and continuing efforts to terminate Northampton's power purchase agreement (PPA) and restructure the rated debt have not been successful. Fitch expects it is unlikely that Northampton will be relieved from its obligations under the PPA, nor is it likely that sponsors will provide a cash infusion. Liquidity is strained and Fitch expects Northampton's operating cash flows will be insufficient to make scheduled debt repayments. Any deterioration in operating performance from the latest projections may accelerate an eventual default.
Northampton consists of a 112 megawatt (net) coal-fired qualifying facility in Northampton County, PA, that supplies energy to Metropolitan Edison Co. (Issuer Default Rating 'BBB-' by Fitch) under a long-term PPA. Northampton is structured as a limited partnership and is owned by indirect subsidiaries of Calypso Energy Holdings LLC, which is owned by Cogentrix Energy, LLC (Cogentrix) and investment companies managed by EIF Management, LLC. Subsidiaries of Cogentrix manage the partnership and perform operations and maintenance at the facility.
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