Oregon Clean Energy LLC Preliminary 'BB-' Rating Affirmed, Recovery Rating Revised To '2' Following Term Loan Upsize

  • Oregon Clean Energy LLC (OCE LLC), owner of Oregon Clean Energy (OCE) in Ohio, has upsized its term loan B to $530 million from $500 million.
  • On Feb. 1, 2019, we assigned a preliminary 'BB-' rating and '1' recovery rating to OCE's senior secured debt based on its $500 million senior secured term loan B and $50 million senior secured revolving credit facility.
  • Following the upsize we affirmed our preliminary 'BB-' rating but revised our recovery rating to '2' from '1'. The preliminary '2' recovery rating indicates our expectation of substantial recovery (70%-90%; rounded estimate: 85%) in the event of default.
  • The stable outlook reflects our expectation that OCE will maintain a minimum DSCR above 1.50x. We also expect OCE to pay down approximately $260 million of its senior secured term loan B through its cash flow sweep and mandatory amortization, yielding roughly $270 million debt outstanding at maturity in 2026.
Oregon Clean Energy (OCE) is an 870-megawatt (MW) combined cycle gas-fired 
power plant in Oregon, Ohio, in the American Transmission Systems Inc. (ATSI) 
zone of the PJM Interconnection. Ares EIF and I-Squared Capital own the 
project through a 50-50 joint venture. Plant construction began in November 
2014 and was completed in July 2017 at a total cost of approximately $856 

  • OCE is one of the newest and most efficient combined cycle power plants in the region, with a heat rate around 6,600-6,800 British thermal units (Btu) per kilowatt hour (kWh).
  • The power plant is strategically located near the load center in Toledo, Ohio, with access to low-cost natural gas feedstock. Furthermore, the project has four firm gas supply agreements that mitigate fuel procurement risk relative to peers.
  • A revenue put contract mitigates market exposure through August 2022 by providing a gross energy margin floor of $50 million annually.
  • OCE sells all of its power produced on a merchant basis in a competitive electricity market in which fundamental supply and demand factors constantly influence wholesale power prices. After the revenue put contract expires in August 2022, OCE will be fully exposed to market forces.
  • The revenue put option is structured to use the pricing index at the PJM ATSI hub. However, OCE receives locational marginal pricing at the node. Nodal prices can differ from those at the power trading hub.
NEW YORK (S&P Global Ratings) Feb. 15, 2019--S&P Global Ratings today took the 
rating actions listed above. OCE utilizes two Siemens SGT6-8000H combustion 
turbines, which we view as among the most efficient gas turbines on the 
market. During summer 2018, the plant achieved an average heat rate below 
6,600 Btu/kWh.

OCE has a contractual agreement to receive up to 280,000 million Btu (MMBtu) 
of natural gas supply per day on the Generation Pipeline Lateral, but 
currently only requires approximately 150,000 at most. Average daily needs are 
around 120,000 MMBtu per day, and of this amount, 100,000 MMBtu per day is 
under firm gas transport contracts along the ANR and Panhandle pipelines. We 
often view merchant power assets with firm transportation service arrangements 
favorably because they will be given the highest priority on gas delivery 
through the pipeline during periods of peak demand. In our view, OCE has 
greater access to natural gas supply than peers due to its three firm 
transport contracts on two different pipelines. We also note that the Nexus 
Pipeline has established a dedicated tap to OCE, which provides future 
optionality for access to a third pipeline.

The stable outlook reflects our expectation that OCE will pay down 
approximately $260 million of its term loan B through its cash flow sweep and 
mandatory amortization through 2026 and have roughly $270 million outstanding 
at maturity. We anticipate the debt service coverage ratio (DSCR) during the 
next 12 months will be greater than 2.00x, with a minimum of 1.59x over the 
project's life.

We could lower the rating if the project were unable to maintain a minimum 
DSCR of 1.50x. This could stem from the deterioration of energy margins, 
possibly caused by lower power demand or continued low commodity prices. A 
negative rating action could also occur if the project experiences unexpected 
operational issues that cause a prolonged unforced outage.

While unlikely in the near term, we could raise the rating if we expect the 
project to maintain a minimum base-case DSCR greater than 1.85x in all years, 
including during the post-refinancing period. This could stem from secular 
improvement in power and capacity prices in PJM and continued procurement of 
inexpensive natural gas feedstock.
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