Release: Moody's affirms Paiton Energy's B1 rating
Friday, July 17 2009 - 01:49 AM WIB
"The affirmation reflects Moody's view that Paiton's planned USD1.54 billion expansion for its 815MW P3 coal-fired power project will not have material adverse impact on existing lenders' interests in the P7/8 project, given the presence of various security protection mechanisms during the P3 construction period," says Jennifer Wong, Moody's lead analyst for the company.
These protection mechanisms mainly include (1) split power purchase agreement (PPA) invoicing for P7/8 and P3 which allows separation of project cash waterfalls; (2) PPA structured to provide for separate compensation for each of the two projects; (3) P3 Lenders have agreed to forbear triggering enforcement over shared security during construction; (4) additional debt service reserve (DSR) of approximately USD115 million made available to P7/8 lenders from financial close until 6 months after P3 commercial operation date, meaning October 2012;and (5) contingent equity of USD180million.
"At the P3 commercial operation date, P7/8 debt outstanding will be manageable at approximately USD322 million (as compared to outstanding of USD872 million as of 31 December 2008), which are expected to be fully repaid by Feb 2014", says Wong, adding "Further comfort can be drawn from the 6-month debt-service reserve in place and additional security mechanisms".
The B1 rating reflects Paiton's stable operational performance since it restructured its PPA in 2003. It has maintained the availability factor of its plants consistently higher than the PPA requirement and well above 85% over the past three years. Furthermore, payments from its off-taker, Perusahaan Listrik Negara (PLN) (Ba3/Positive) have so far been on time.
The stable outlook reflects Moody's expectation that Paiton will continue to demonstrate a strong operating performance and generate steady and predictable cash flow. The stable outlook also incorporates Moody's expectation that the expansion will have a minimal adverse impact on its existing operation due to the separation of project cash waterfalls.
Upward pressure on the rating is unlikely in the next 12 months, given the execution risks associated with the company's large expansion plan.
On the other hand, negative rating pressure could emerge if 1) there is significant cost overrun and/or delays to the P3 expansion plan and which results in a materially adverse impact on Paiton's operational and financial profile, and impairs the interests of current bondholders; or 2) the company's operational performance in P7/8 deteriorate, such that its DSCR consistently falls below 1.2x.
Moody's last rating action on Paiton was taken on 8 October 2008, when its outlook was changed to stable from positive.
The principal methodology used in rating this issuer was Moody's Rating Methodology for Power Generation Projects, which can be found at www.moodys.com in the Credit Policy & Methodology directory, in the Ratings Methodologies subdirectory.
PT Paiton Energy owns and operates two 615MW coal-fired power units in East Java, Indonesia. Paiton Energy Funding B.V. is a special purpose company created for the bond funding of the power plants. (end of release)