Fitch Affirms Ratings on Genesis Solar LLC's $852MM Debt After Partial Construction Delay

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has affirmed the ratings and Outlooks on a total of $852 million of debt issued by Genesis Solar LLC (Genesis). The affirmation follows the recent unearthing at Genesis of scattered artifacts during site grading. Fitch is aware of the continued risk of construction delay but believes the project has sufficient completion agreements and liquidity to mitigate the impact of further delays. Fitch will continue to actively monitor construction progress.

Fitch has affirmed the ratings as follows:

--$561.6 million series A trust certificates (U.S. Sovereign Guaranteed), due 2038, rated 'AAA'; Outlook Negative;

--$120 million floating-rate bank facility (U.S. Sovereign Guaranteed), due 2019, rated 'AAA'; Outlook Negative;

--$140.4 million series B trust certificates (Non-Guaranteed), due 2038, rated 'BBB+'; Outlook Stable;

--$30 million floating-rate bank facility (Non-Guaranteed), due 2019, rated 'BBB+'; Outlook Stable

KEY RATING DRIVERS

ROBUST COMPLETION AGREEMENT PROTECTS CREDITORS: Fitch considers it very unlikely that completion issues would affect bondholders and lenders. The Genesis Construction Completion Agreement (CCA) between NextEra Energy Capital Holdings, Inc. (NextEra Capital, 'A-'/Stable Outlook) and Genesis effectively mitigates construction risks by requiring a full or partial buy down of the project debt by the sponsor if project economics are compromised by any lack of completion. The CCA is also guaranteed by parent NextEra Energy Inc. (NextEra, 'A-'/Stable Outlook).

SUBSTANTIAL LIQUIDITY AND FAVORABLE CONTRACT TERMS: Genesis benefits from six months of debt service reserves, a 6% construction contingency on total project costs that could cover 12 months of additional debt service, and a substantial development security in the revenue contract for delay damages. In addition, the CCA supports interim debt service prior to performance testing for completion, and provides contingent equity funding for additional project costs and delay damages above debt repayment amounts.

CONSTRUCTION ON SCHEDULE AFTER PARTIAL WORK STOPPAGE: Construction remains on schedule, according to the sponsor, to meet the anticipated revenue contract commercial operation date of Nov. 30, 2013 for Unit 1, despite a partial-site construction delay. Construction stopped on a portion of Unit 1 only in November 2011 due to evidence of potentially significant historical artifacts. Fitch understands the artifact findings are on less than 20% of the total construction site and that the construction and schedule for Unit 2 are entirely unaffected.

WHAT COULD TRIGGER A RATING ACTION:

SPONSOR DOWNGRADE: Based on Genesis's significant reliance on NextEra's CCA, a downgrade of the sponsor could affect the project rating.

CHANGE IN COUNTERPARTY RATING: PG&E's rating is an active constraint on the project rating.

SECURITY

Collateral for the debt includes all of the ownership interests in Genesis and a first priority security interest in all of the project assets and accounts.

PROJECT UPDATE

Construction on Genesis began in September 2011 but was stopped only on a portion of the site in November 2011 due to evidence of potentially significant historical artifacts. As noted above, Fitch understands that the artifact findings are on less than 20% of the total construction site, and affect only Unit 1. Construction resumed on this portion of the site in February 2012 after receiving approval from the U.S. Bureau of Land Management (BLM).

The BLM approval stipulates a revised grading process on the portion of the site that is affected only. The new grading process requires inspection of grading material by cultural and tribal monitors. Additional costs to the project for grading inspections are estimated to be minimal. Favorably, an independent archeological expert familiar with the site and region opined that it is unlikely that significant cultural materials will be present. While construction currently remains within schedule, Fitch is not able to determine the final outcome of the inspection process at this time.

Fitch considers it very unlikely that Genesis will not be completed, or that any completion shortfall will affect Genesis creditors. Genesis benefits from a very strong CCA, guaranteed by the parent NextEra, that largely mitigates construction risks. The CCA includes a complete buy down of the $852 million project debt if the projects' commercial operation dates (COD) are extensively delayed, or if the revenue contract is terminated prior to COD. The CCA also provides a partial buy down of the debt if only one unit is completed, either Unit 1 or Unit 2, or if the project does not meet certain performance or availability tests. The CCA also covers significant delay damages and additional project costs in addition to debt repayment amounts.

Potential construction delays are mitigated by substantial liquidity and other favorable contractual terms. Genesis benefits from six months of debt service reserves, a construction contingency of 6% of total project costs, and a substantial development security in the revenue contract. Interest on the debt is capitalized until the first half of 2013. The revenue contract with Pacific Gas & Electric Co. (PGE, 'BBB+'/Stable Outlook) anticipates a commercial operations date (COD) for Unit 1 by November 2013, which the project is expected to meet if there are no further significant delays. Fitch notes that COD on Unit 1 could be delayed for up to three additional years without terminating the revenue contract. Other revenue contract termination provisions are similarly difficult to trigger, largely ensuring that the revenue contract will survive through construction.

Fitch notes that a recent outbreak of distemper among kit foxes, a protected species at the Genesis project site, is not expected to result in construction delays.

Genesis is a total 250 MW parabolic trough solar project located in the Sonoran Desert, California. The project received debt guarantees from the U.S Department of Energy under the Financial Institution Public Partnership program in August 2011. The project is comprised of two, distinct 125 MW solar fields (Unit 1 and Unit 2) which are being built in succession. The two units are expected to be fully operational by April 2014.

The project is owned and operated by NextEra, and the equity and completion obligations are provided by NextEra Capital with a parent guarantee. The project is structured as a special purpose vehicle that is bankruptcy remote from NextEra.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);

--'Rating Criteria for Solar Power Projects' (Feb. 23, 2012).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832

Rating Criteria for Solar Power Projects

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=671120

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