OREANDA-NEWS. Fitch Ratings has affirmed the ratings of Planta de Reserva Fria de Generacion de Eten S.A.'s (Eten) senior secured notes as follows:

--$132.8 million series 2013-1 partially guaranteed senior secured variable funding notes due 2033 at 'BBB-', Outlook Stable.

The rating reflects stable cash flows anchored by contracted long-term revenues with the Peruvian electrical generation system, and sufficient liquidity via internal reserves and external guarantees. The rating affirmation is based upon the project's completion of construction and acceptance by the government.

KEY RATING DRIVERS
Minimal Revenue Risk: Revenue Risk- Midrange
Revenue risk is low with fixed capacity payments sized to cover debt service. Payments are due from end electricity users collected via the system of Peruvian generating companies (Gencos) with credit risk of the system viewed as similar to the country of Peru as a whole, rated 'BBB+'; Outlook Stable. The 20-year term of the PPA begins at project completion resulting in a tail of approximately two years after the expected payment of the debt. PPA termination risk is low. Revenue risk was revised to Midrange from Stronger based on Peru's sovereign rating.

Manageable Operating Risk: Operating Risk- Midrange
The project is a simple-cycle power plant to be operated by Cobra Peru, the local operating arm of one of the sponsors and Cobra Instalaciones y Servicios, S.A. (Cobra). Cobra has significant operating experience with solar and wind projects but does not have prior experience with thermal power plant operations. This risk is mitigated by the experience of the other sponsor, Empresa de Mantenimiento, Construccion y Electricidad S.A. de C.V (EMCE), as an operator of thermal projects in Peru and the long-term servicing agreement provided by General Electric.

Negligible Supply Risk: Supply Risk- Midrange
The project has limited exposure to fuel suppliers to transport limited amounts of B5 diesel fuel from a nearby port to be stored in the plant's onsite reserve tanks. The reserve tanks have a capacity of 10 days assuming constant dispatch. A fuel outage is considered a force majeure event under the concession agreement and is not subject to penalties.

Debt Supported by Partial Credit Guarantee (PCG): Debt Structure- Midrange
The project's fixed-rate, fully amortizing debt due 2033 with debt service and maintenance reserves and an equity distribution lock-up trigger are typical project finance features. The transaction also includes a PCG of 20% of the outstanding debt amount from Corporacion Andina de Fomento (CAF; rated 'AA-'/'F1+'; Outlook Stable). The guarantee is exercisable on a pre-default basis to cover any shortfall in principal or interest due, and is irrevocable. Guarantee amounts exercised may be repaid on a subordinated basis in subsequent periods, replenishing the liquidity available to the notes.

Financial Profile Boosted by PGC
Under the Fitch base case scenario, the transaction debt service coverage ratios (DSCR) average 1.27x with a minimum of 1.19x. Fitch's rating case, which assumed higher dispatch frequency, increased operation and maintenance (O&M) costs, increased degradation and an additional 2% power decrease, resulted in an average DSCR of 1.16x with a minimum of 1.07x. These coverage levels, in conjunction with the PCG available to noteholders, are supportive of the rating, given asset characteristics.

RATING SENSITIVITIES
Negative: Inadequate Energy Output: Energy production persistently underperforming original projections could result in a downgrade.

Negative: Dispatch Frequency: If the plant is called on to generate power at a higher than expected rate, unrecoverable maintenance expenses could increase materially, affecting the rating.

Positive: Financial metrics sustained above Fitch's base case, supported by a proven, stable operating and cost profile could lead to an upgrade.

CREDIT UPDATE
The project achieved a commercial operation date (COD) of July 2, 2015, in accordance with the extension granted by the government. Independent of the government-approved extension, the project is due approximately USD2.1 million in liquidated damages (LD) from the engineering, procurement and construction (EPC) contractor based on the delay from the March 22, 2015 completion date until the issuer's initial requested COD of May 28. The issuer began to receive cash flows beginning in July of this year, three months later than the April date assumed in the cash flow model. While LD amounts are supported by the BTG Pactual (BBB-; Outlook Negative) letter of credit of USD14.6 million, the project is not reliant on LDs to support debt repayment.

The plant has been called to dispatch three separate times since July: twice from September 9th to 11th for roughly 60 hours total due to a gas pipeline emergency and once on October 18th for a little more than an hour due to a transmission congestion emergency. All three starts were successfully completed within the 30 minutes required under the concession contract.

The project initially entered into a long-term fuel supply agreement with Uno Petroleos Peru S.A.C. (Uno) to haul B5 diesel fuel within the quality specifications. Uno is no longer providing service to the project. The issuer has signed a letter of intent to receive fuel from Repsol, one of two large petroleum companies active in the region. The fuel is readily available and fuel costs are a full pass-through to the off-takers. As such, Fitch does not consider the fuel supply contract to be a key rating driver.

TRANSACTION SUMMARY

Eten's revenues to support debt repayment are derived from a concession from the Peruvian government to build and operate a 223 MW thermal power plant in the Chiclayo province of Northwestern Peru. The plant is designated as a 'Cold Reserve' back-up generator with a marginal cost approximately 10 times higher than Peru's average 2012 marginal cost. As such, the plant is expected to generate electricity only in cases of severe drought or in cases of emergency such as earthquake or other natural disaster resulting in downed transmission lines.

The power plant is a simple-cycle plant that will consist of a single GE 7FA 5 series turbine and will be capable to begin generating electricity without access to grid electricity via an auxiliary generator.

The project sponsors are Cobra and Empresa de Mantenimiento, Construccion y Electricidad, S.A. de C.V. (EMCE). Cobra is a subsidiary of the Spanish construction group, Grupo ACS while EMCE forms a part of the energy division within Grupo Terra, a Central American power generator and developer.