OREANDA-NEWS. April 13, 2015. Fitch Ratings has affirmed Plains End Financing LLC's (Plains End) senior secured bonds at 'BB' and subordinated secured bonds at 'B+'. The Rating Outlook for all bonds is Stable.

The affirmation and outlook of the senior and subordinate debt reflect the project's continued strong operations and stabilized cost profile. The project benefits from fixed-price tolling agreements with an investment grade counterparty, however, intermittent dispatch and operating costs above the original projections reduced cash flows to levels consistent with the current ratings. The potential for refinance risk and structural subordination incrementally reduce the rating of the junior notes.

KEY RATING DRIVERS

Stable Contracted Revenues [Revenue Risk- Midrange]: The project benefits from stable and predictable revenues under two 20-year fixed price power purchase agreements (PPAs) with a strong utility counterparty, Public Service Company of Colorado (PSCo; rated 'A-' with a Stable Outlook). Operating plants Plains End, LLC (PEI) and Plains End II, LLC (PEII) receive substantial capacity payments that account for 82% of consolidated revenues. However, energy margins may not sufficiently fund accelerated overhaul expenses as a result of increased dispatch.

Low Supply Risk [Supply Risk- Stronger]: The PPAs with PSCo are tolling-style agreements. Under the contracts, all variable fuel expenses are passed through to PSCo, subject to heat rate adjustments. The contracts represent a stronger attribute that limits the fuel supply risk to the project.

Operational Stability Mitigates Cost Increases [Operation Risk- Midrange]: The project was designed to provide backup generation for nearby wind projects due to the intermittency of wind resources. The project faces accelerated major maintenance and less than full recovery of variable expenses when the project is dispatched at a rate higher than anticipated. Dispatch has decreased from the 2008 high; however, the project is still susceptible to decreased cash flow from accelerated major maintenance. This risk is partially mitigated by strong availability and a stabilized cost profile including property taxes.

Refinance Risk Poses Threat for Subordinated Debt [Debt Structure- Midrange (Senior)/ Weaker (Subordinated)]: While the senior debt benefits from a typical project finance structure, the 'B+' rating on the subordinate notes reflects the potential for refinance risk in 2023 if the project is unable to meet target amortization amounts. Under the Fitch rating case, which demonstrates the effect of reduced cash flow to the subordinate tranche, there is still sufficient cushion to repay the sub notes by 2023. If the project is only able to meet the minimum amortization payments, however, there would be a balloon in 2023 for the outstanding amount. The project is current on all target amortization.

Debt Service Profile Remains Consistent: 2014 and budget 2015 debt service coverage ratios (DSCR) for both the senior and subordinated debt fall in line with current expectations. Fitch's rating case incorporates increased dispatch as well as a 5% increase to operating costs and a 10% increase to major maintenance. Under this scenario, the average DSCR is 1.36x with a minimum of 0.88x during the final year at the senior level and 1.11x and 1.04x at the sub note level.

Consistent with Peers: CE Generation, LLC ('BB-', Stable Outlook) provides a comparable peer to Plains End. CE Generation, LLC's cash flow is reliant on distributions from a portfolio of geothermal projects with project level debt that is structurally senior to the rated debt. The senior distribution trigger is relatively high (1.50x), and ongoing cash traps have led to financial pressure at the rated subordinate debt level. Projected DSCRs are near breakeven over the near term, consistent with that of the subordinate debt at Plains End.

RATING SENSITIVITIES

Negative - Dispatch Sensitivity: Sustained increased dispatch would accelerate major maintenance and negatively impact cash flow.

Positive - Cash Flow Projection Revisions: Further cost savings or structural revenue enhancements above the projected level could result in an upgrade.

TRANSACTION SUMMARY

During fiscal year 2014, Plains End experienced a drop off in dispatch to 3.8% on average across both sites due to a more favorable wind generation profile. While the decreased capacity factor resulted in a 46% reduction to energy revenues for the year, total revenues consist primarily of capacity payments, with energy revenues representing less than 5% of the total. Further, the project benefits from a lower annual capacity factor since energy revenues do not fully compensate for the increased variable and maintenance costs (including a PPA capacity payment which does not include downtime for maintenance). As such, the DSCR calculation for fiscal year 2014 remains largely flat compared to 2013 with 1.30x coverage at the senior level and 1.08x at the consolidated debt level for the junior notes.

The major maintenance funding cycle has been updated for this review to reflect the sponsor's expectations for dispatch, run hours and maintenance needs though overall changes are minimal in terms of impact. Due to the low dispatch at PEI, there are no major overhauls expected before 2021. PEII is not expected to receive a 16,000 hour major maintenance outage prior to 2017. In addition, the sponsor believes that its ability to swap out engines during the overhaul should help to reduce the impact to availability. The Fitch base and rating case now incorporate new major maintenance funding patterns reflective of a five-year cycle of relatively stable costs, consistent with management expectations.

Plains End is indirectly owned by Tyr Energy (50%), John Hancock (35%) and Prudential (15%) following the May 2013 sale. Plains End was formed solely to own and develop two gas-fired peaking projects, PEI and PEII, located in Arvada, Jefferson County, Colorado. The plants are peaking facilities used primarily as a back-up for wind generation, as well as other generation sources, in Colorado with a combined capacity of 228.6 MW. Combined cash flows from both plants service the obligations under the two bond issues.

PEI and PEII have long-term PPAs structured as tolling contracts with PSCo that expire in 2028. Under the PPAs, PSCo has a right to all of the capacity, energy and dispatch of the facilities. PEI and PEII receive capacity payments and variable energy payments. NAES Corporation (NAES) has continued as operator, supporting operational stability. Both Tyr and NAES have the same parent company, ITOCHU Corporation, demonstrating a further alignment of interests.

SECURITY

Plains End's obligations are jointly and severally guaranteed by operating plants PEI and PEII. The obligations of the issuer and guarantors are secured by a first-priority perfected security interest in favor of the collateral agent. The collateral includes all real and personal property, all project documents and material agreements, all cash and accounts, and all ownership interests in the issuer and guarantors. The collateral will be applied first to the senior secured bonds and then to the subordinated secured notes.