The rating downgrade to 'C' is based on Fitch's expectation that the project will fail to meet a pari passu reimbursement obligation under a drawn letter of credit (LC) due in
KEY RATING DRIVERS
Impending Technical Default
Geothermal Resource Depletion - Supply Risk: Weaker
Underperformance of the geothermal resource has lowered net operating capacity at the project's three interlinked geothermal power plants. With the decline in the geothermal resource, energy revenues have fallen to levels that are not sufficient to meet debt obligations.
Expected Payment Shortfalls - Debt Structure: Midrange
Fitch's projections indicate that cash available for debt service will result in shortfalls for future payment obligations on the fully amortizing certificates. These obligations are supported by approximately
Limited Price Risk - Revenue Risk: Midrange
Southern California Edison (SCE, rated 'A-' with a Stable Outlook) is committed to purchase Coso's entire energy output under long-term, mostly fixed-price power purchase agreement (PPA) through 2030. Variable pricing on energy sales is limited to one-fifth of total revenues between
Lack of Dedicated Operating Reserves - Operation Risk: Weaker
The project has no dedicated operations and maintenance or major maintenance reserve, leaving little cushion to protect against increased operational costs.
Coso's geothermal assets have suffered worse resource depletion than those within the
Negative: A technical default on the pari passu LC repayment obligation would accelerate payment of the certificates resulting in default.
Coso is pursuing a replacement for the PPA security LC, but if it is unable to secure one by
Note that the cross default provision only exists for the reimbursement obligation of the PPA LC. Failure to pay reimbursement obligations under the debt service reserve LC does not cross default to the lease.
Even if Coso is able to replace its PPA security LC, a payment default on the certificates still appears probable. In developing a base case for long-term expected performance, Fitch utilized recent performance as an assumption for Coso's net capacity and applied minimal additional stress. Fitch expects Coso to operate below breakeven levels for the remainder of the debt tenor, with a DSCR average of 0.77x. Based on this profile, and the availability of liquidity in the reserve, default could occur between 2015 and 2017.
Coso makes its rent payments semi-annually with a large payment in January and smaller payment in July of each year. As of
CGP is a special-purpose company formed to lease and operate the Coso project, which consists of three interlinked geothermal power plants located in
Additional information is available at 'www.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
Source: Fitch Ratings
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