Fitch Ratings has affirmed 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 (senior bonds) at 'C'. The debt was issued by the Pennsylvania Economic Development Financing Authority in 1994 and the proceeds loaned to Northampton.
The rating affirmation reflects continuing inability to meet scheduled debt service payments on the senior bonds with cash flow from operations. Northampton was required to draw on its senior debt service reserve in order to make its debt service payments in 2010, and the reserve has not been fully replenished. Fitch expects the reserve shortfall will not be eliminated and that operating cash flow will continue to be insufficient to meet scheduled debt service. Fitch expects that absent a restructuring or external funding, a payment default is likely in 2011 or 2012.
Northampton's financial performance has been worse than expected primarily due to fuel costs and operating and maintenance expenses that have exceeded original projections, and power prices that have not escalated to anticipated levels. Debt service peaks in the fourth quarter of 2010, subsequent to a reduction in contractual capacity payments effective Oct. 1, 2010 under Northampton's power purchase agreement (PPA), placing additional strain on the project's liquidity. The PPA further restricts Northampton's ability to sell power in excess of its contractual obligation at profitable rates. Fitch does not expect that Northampton will be relieved from its obligations under the PPA, nor is it likely that sponsors will provide additional cash liquidity. Any deterioration in operating performance from expected levels may accelerate an eventual default.
Future rating actions are likely to be influenced by:
--Service disruptions that would reduce PPA revenues;
--Increases in waste coal and alternative fuel costs;
--Increases in other operating and maintenance expense levels.
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.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', Aug. 16, 2010;
--'Rating Criteria for Thermal Power Projects', June 15, 2010.
Applicable Criteria and Related Research:
Rating Criteria for Thermal Power Projects
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=528967
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
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