PRESS RELEASE: S&P Lowers Rating On EIF Calypso To 'B+'; Outlook Negative

1st Jul 2010 21:13

The following is a press release from Standard & Poor's: -- Several key assets in U.S. power plant owner EIF Calypso LLC's portfolio continue to underperform and are currently not making cash distributions. -- We are lowering our rating on EIF Calypso's senior secured facilities to 'B+' from 'BB'. -- The negative outlook reflects our view that operational difficulties may continue to result in trapped cash at the operating company level, the overall volatility of cash flow has increased, and that management lacks sufficient visibility into the portfolio performance beyond 2011. NEW YORK (Standard & Poor's) July 1, 2010--Standard & Poor's Ratings Services said today it lowered its rating on U.S. power plant owner EIF Calypso LLC's $800 million in senior secured facilities to 'B+' from 'BB'. The facilities consist of a $150 million letter of credit, a two-tranche term loan of $260 million (tranche A amortizing and maturing 2014; $174 million outstanding) and a $390 million (tranche B maturing 2019; $335.3 million outstanding). The recovery rating on the facilities remains '2', indicating expectations of substantial recovery (70%-90%) of principal if a payment default occurs. The ratings action reflects lower expected cash distributions from assets within Calypso Energy Holdings LLC, of which EIF Calypso owns 80%. At Windsor Financing, problems include lower debt service coverage in 2009 caused by poor fuel quality; higher-than-expected capacity factors causing increased wear; coal production, transportation, and delivery issues; and higher-than-expected substitute power expenses. We currently project that Windsor will not make distributions in 2010 and 2011, and management does not currently have enough visibility to expect when distributions will resume. At Selkirk Cogen, lower merchant energy margins have negatively affected the 23% of Selkirk's capacity that became merchant after the power purchase agreements (PPA) with Niagara Mohawk Power Corp. expired in June 2008. Based on our projections, Selkirk will not meet its distribution test of 1.35x through the bonds' maturity in 2012. At Carney's Point, partial exposure to market pricing has resulted in substantial underperformance for 2009, distributing $1.7 million as compared with budgeted expectations of about $12.5 million. As a result, we view the cash flow coming from the plant as more volatile, which affects our overall assessment of risk for the entire portfolio because Carney's Point is expected to make 17% of distributions to Calypso Energy Holdings on a pro forma basis. The negative outlook reflects our view that the merchant portion of Selkirk's capacity will be insufficient to allow distributions resulting in a cash trap in 2011. Combined with ongoing operational difficulties at Windsor, this will result in cash traps at two of the portfolio's key assets in 2010 and 2011. "This decrease in expected distributions and the increased volatility in cash flows at other assets, such as Carney's Point, have increased the portfolio's risks," said Standard & Poor's credit analyst Theodore Dewitt. The outlook also reflects our concern that management visibility into expected asset performance is limited though 2011. If coverage ratios reach the 1.10x-1.15x range, we may consider a downgrade. However, if Windsor resolves its operational issues, Selkirk performs above expectations, and the new asset managers bring increased visibility to future performance, we could change the outlook to stable. RELATED CRITERIA AND RESEARCH -- Updated Project Finance Summary Debt Rating Criteria, published Sept. 18, 2007, on RatingsDirect. -- Rating Criteria for Project Developers, published Sept. 30, 2004 Complete ratings information is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. 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