Oregon Clean Energy LLC's Senior Secured Debt Assigned Preliminary 'BB-' Rating (Recovery Rating: '1'); Outlook Stable

  • Oregon Clean Energy LLC (OCE LLC), owner of Oregon Clean Energy (OCE) in Ohio, is issuing a $500 million senior secured term loan B due in 2026 and a $50 million senior secured revolving credit facility due in 2024. We expect OCE LLC to use proceeds to refinance approximately $423 million in debt, fund a distribution to sponsors, and pay related transaction fees and expenses.
  • OCE is an 870-megawatt (MW) combined cycle natural gas fired power plant that sells energy and capacity into the Pennsylvania-New Jersey-Maryland (PJM) Interconnection. The plant has been operational since July 2017.
  • Based on our view of market-driven variables, such as power demand, the pace of retirement for uneconomical units, commodity prices, and capacity auction cleared prices, we forecast OCE's realized spark spreads in conjunction with its dispatch characteristics to provide a minimum debt service coverage ratio (DSCR) of at least 1.70x and an average DSCR of 2.44x through refinancing. We note that the project has a revenue put contract in place through August 2022, which provides a gross energy margin floor of $50 million annually.
  • We are assigning a preliminary 'BB-' rating to OCE LLC's senior secured debt. The preliminary '1' recovery rating indicates our expectation of very high recovery (90%-100%; rounded estimate: 95%) 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 $250 million of its senior secured term loan B through its cash flow sweep and mandatory amortization, yielding roughly $250 million debt outstanding at maturity in 2026.
NEW YORK (S&P Global Ratings) Feb. 1, 2019--S&P Global Ratings today took the 
rating actions listed above. We base this report on information as of Feb. 1, 
2019. The preliminary rating is subject to review of documentation. It will 
also depend on the final debt amount, amortization schedule, and interest 
rate. We expect to finalize the rating within 90 days. If S&P Global Ratings 
does not receive final documentation within a reasonable time or if final 
documentation departs from materials reviewed, S&P Global Ratings reserves the 
right to withdraw or revise its ratings.

Highly efficient CCGTs situate OCE at the bottom of the dispatch stack. 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.

The stable outlook reflects our expectation that OCE will pay down 
approximately $250 million in debt through its cash flow sweep and mandatory 
amortization through 2026 and have roughly $250 million debt outstanding at 
maturity. We anticipate the DSCR during the next 12 months to be greater than 
2.00x, with a minimum of 1.70x over the life of the project.

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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