Fitch Affirms Genesis Solar LLC's $852MM Total Trust Certificates & Bank Facilities

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings on a total of $ 852 million ($496 outstanding) million of debt issued by Genesis Solar LLC (Opco, Genesis):

--$561.6 million ($321.6 million outstanding) 3.875% series A trust certificates (U.S. Sovereign Guaranteed) due 2038 at 'AAA'

--$120 million ($75.2 million outstanding) floating--rate bank facility (U.S. Sovereign Guaranteed) due 2019 at 'AAA'

--$140.4 million ($80.4 million outstanding) 5.125% series B trust certificates (Non-Guaranteed) due 2038 at 'BBB+'

--$30 million ($18.8 million outstanding) floating rate bank facility (Non-Guaranteed) due 2019 at 'BBB+'.

The Rating Outlook is Stable.

The affirmation and Stable Outlook of Genesis Opco notes are based on the project's fully contracted output with an investment-grade offtaker and a strong projected financial profile with an average debt service coverage ratio (DSCR) of 2.42x under Fitch's rating case analysis. The parabolic trough technology is proven and the sponsor-affiliated operator is experienced, though the project will need more operating performance to establish a proven cost profile. The rating is capped by the 'BBB+' rating of the offtaker.

KEY RATING DRIVERS

Stable Revenue Stream [Revenue Risk Price: Stronger]: The rating is anchored by stable revenues from a strong, long-term, fixed-price, power purchase agreement (PPA) with an investment-grade utility, Pacific Gas & Electric Company (PG&E rated 'BBB+' with a Stable Outlook by Fitch). The PPA does not allow for economic curtailment and contract termination risk is low.

Adequate Solar Resource [Revenue Risk Volume: Midrange]: Total generation output in Fitch's rating case includes one-year P90 electric generation to mitigate the potential for lower-than-expected solar resource. In accordance with Fitch's criteria for investment-grade solar projects, the project is able to meet debt obligations under a one-year P99 generation scenario, with DSCRs exceeding 1.0x after 2017.

Unproven Cost Profile [Operation Risk: Midrange]: The project utilizes proven solar parabolic trough technology, largely similar to the Solar Energy Generating Systems (SEGS) technology, with which the sponsor has over 20 years of operating experience. The sponsor's experience helps to reduce operating risk but Genesis has yet to establish a proven cost profile due to lack of operating history.

DOE Guarantee for 80% of the Issued Debt (Debt Structure Opco Guaranteed tranches: Stronger; Non-guaranteed tranches: Midrange): The guaranteed series A certificates and floating rate bank term loan benefit from a guarantee from the U.S. Government (rated 'AAA' with a Stable Outlook). The ratings reflect the certainty of timely debt service payments provided by a loan guarantee from the U.S. Department of Energy (DOE) for 100% of principal and interest on those guaranteed portions of the debt. The Opco debt structure is otherwise conventional as it is fully amortizing and includes a six-month debt service reserve (DSR). There is a cash sweep mechanism to amortize the bank loan tranches in three years.

Strong Financial Coverage: Under Fitch's base case, which incorporates P50 generation, 2% generation reduction, floating interest rate stress and inflation of 1.50%, Opco DSCRs average 2.84x with a minimum of 2.22x. Under Fitch's rating case which incorporates P90 generation and increased costs, Opco DSCRs average 2.42x with a minimum of 1.94x.

Comparable to Peers: The Opco rating is supported by a sizable financial cushion in debt service coverage built into the financial structure. The increased level of coverage compared to peers is due to a high level of contributed equity and relatively low leverage on the transaction.

RATING SENSITIVITIES

Negative: Counterparty Risk: A downgrade of the U.S. sovereign rating would result in a commensurate downgrade on loan guarantees for 80% of the rated debt. A rating downgrade of the PPA offtaker, PG&E below the project rating would result in a commensurate downgrade of Genesis.

Negative: Decline in Cash flow: Energy output or solar resource persistently below one year P90 projections could result in a negative rating action. An increase to operating costs that exceeds 10% of the original projections could result in a downgrade, especially under a low production scenario.

Positive: A rating upgrade is unlikely in the near term as the project rating is capped by PG&E's rating.

SUMMARY OF CREDIT

The project consists of two, distinct 125 MW solar fields (Unit 1 and Unit 2) which were built in succession. The project is owned and operated by NextEra Energy Resources LLC, an indirect subsidiary of NextEra Energy, Inc. The equity was provided by NextEra Energy Capital Holdings, Inc., under a parent guarantee to NextEra Energy Resources. The project is structured as a special purpose vehicle that is bankruptcy remote from NextEra Energy Resources.

UPDATE

The 2014 DSCR was strong at 4.48x for Opco debt and 3.37x for consolidated debt. The above-forecast financial performance was driven by a 1.8% increase in revenues due to the early completion of Unit 2 and above-budget solar resource. Overall performance in 2014 may not be indicative of future performance as 2015 marks the project's first full year of operation, which includes an increase in the forecasted expense profile to account for more mirror washings and downward revision in the solar resource assessment. However, strong financial performance continued in 1Q15 with revenues 25% above forecast.

Operating performance in 2014 was strong with total generation output 0.5% above the P50 electric generation forecast, high average annual availability at 98% and a 26.3% capacity factor that was in line with expectations. Solar field components had a low breakage rate of 0.14% in 2014. Strong performance continued in 1Q15 with electric generation exceeding budget by 23%, despite a planned outage delayed from 2014 to 1Q15.

Genesis continues to make progress in addressing various legal and cultural matters. A court approved a settlement that resolved the project's dispute with bankrupt equipment supplier Flabeg US Solar Corp. Genesis received a favorable summary judgement in July 2014, dismissing lawsuits initiated in 2010 by California Renewable Energy (CARE) and LaCuna de Aztalan. The groups' subsequent appeal is likely to take 18-24 months to resolve. Genesis reports that its replacement of netting on evaporation ponds that were destroyed by a 2014 storm resolves concerns from the Bureau of Land Management and local government authorities.

Genesis continues to implement mitigation plans regarding Native American artifacts that were found on the project site. Mitigation plans for land erosion are still under consideration by government agencies. Genesis has budgeted for two to three years of avian monitoring per requirement from the U.S. Fish and Wildlife Service, BLM and California Energy Commission (CEC).

Additional information is available on www.fitchratings.com

Applicable Criteria

Rating Criteria for Infrastructure and Project Finance (pub. 12 Jul 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for Solar Power Projects (Utility-Scale Photovoltaic, Concentrating Photovoltaic and Concentrating Solar Power) (pub. 28 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866077

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987168

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987168

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150629006330/en/

Fitch Ratings
Primary Analyst
Yvette Dennis
Senior Director
+1 212-908-0668
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Justin Wu
Associate Director
+1 415-732-5612
or
Committee Chairperson
Gregory Remec
Senior Director
+1 312-606-2339
or
Media Relations, New York
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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