Fitch Ratings has affirmed OrCal Geothermal's In a release on
Key Rating Drivers
Production Dependent on Plant Enhancements: The absence of substitute fuel supply leaves OrCal exposed to the risk of declining geothermal resource production. Production is dependent on an active, sponsor-supported capital plan that could vary from budget. (Supply Risk: Weaker).
Revenue Strengthened by New Contract: OrCal signed a new PPA with
Continued Stable Operations: OrCal has maintained a stable cost profile over the past few years (not including sponsor-funded capital expenditures). The operator is a subsidiary of the project sponsor and has significant experience operating geothermal assets. (Operation Risk: Midrange).
Fully-amortizing Debt Structure: OrCal's fully amortizing debt faces no refinancing risk and contains features typical of project finance structures, such as a 6-month debt service reserve. (Debt Structure: Midrange).
Financial Coverage to Improve: Before the new SCPPA PPA takes effect, OrCal's financial coverage remains exposed to price volatility, with a Fitch rating case DSCR average of 1.25x through 2015. From 2016 - 2020, the fixed energy pricing of the new contract is expected to stabilize revenues, resulting in a DSCR average of 1.58x and minimum of 1.29x.
--SRAC pricing below projections in Fitch's rating case could result in negative rating action.
--Material deterioration in operating performance or a significant rise in operating costs and capital expenditures could result in negative rating action.
--Following completion of the
The senior notes are collateralized by a first priority lien on the accounts, revenues, project agreements, real and personal property or OrCal, and all the equity interests in the project.
The rating affirmation reflects the expectation that OrCal's operational profile will remain stable through debt maturity. The 'BB' rating indicates that OrCal's financial profile is vulnerable to changes in resource production levels or market-based energy prices. The Outlook revision to Stable reflects a significant reduction in price risk through the addition of a new fixed-price PPA.
OrCal recently signed a new PPA with
Under the current SCE contract, which continues through
In 2014, OrCal expects to complete major enhancements to
To fund these enhancements, OrCal drew on funds committed to the project through a subordinate loan by owner
In developing a base case for long-term expected performance, Fitch incorporated the new SCPPA PPA, as well as sponsor expectations for production levels following the
Under the Fitch rating case, financial projections consider a combination of stresses, including a 2.5 percent annual production decline, 5 percent increase in operating expenses, and a low case for SRAC price projections. In this scenario, DSCRs average 1.53x, with a minimum of 1.20x. OrCal is particularly sensitive to low SRAC prices over the next two years. However, a steeper than expected production decline would erode cash flow over the long term, placing emphasis on the importance of adequate capital expenditures to maintain operational performance.
OrCal is a special-purpose company that was created to acquire the
Additional information is available at 'fitchratings.com'.
--'Rating Criteria for Infrastructure and Project Finance' (
--'Rating Criteria for Thermal Power Projects' (
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Thermal Power Projects
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Fitch Ratings has affirmed OrCal Geothermal's
In a release on