Release: Moody's downgrades Paiton Energy funding to B3
Wednesday, June 21 2006 - 01:43 PM WIB
"The rating action reflects Moody's concern over Paiton's consistent weakness in debt servicing capacity, with a debt service coverage ratio (DSCR) weaker-than-anticipated at below 1.2x over the past few years. In Moody's view, further interest rate hikes and an expected increase in scheduled principal repayments starting from 2008 will keep Paiton's DSCR at 1.1-1.2x in the medium term," says lead analyst Kaven Tsang, adding "this level is weak when compared with other rated project companies in the region and appropriately positions the company at the B3 rating level."
At the same time, Moody's recognizes that Paiton has maintained a stable operational performance since the restructuring of its power purchase agreement (PPA) in 2003, with availability factor of the plant at above 90% over the past three years. Payments from the off-taker, PT PLN (Persero), have so far been on time and in accordance with invoices.
The rating outlook is stable, reflecting Moody's expectation that the overall operating environment will remain stable and there will not be material change in the terms of the PPA.
The rating may undergo downward pressure if 1) Paiton's operational and financial performances deteriorate, or 2) interest rates further increase and the company does not take appropriate actions, like increasing the hedging ratio, to lower its exposure such that the DSCR consistently falls below 1.0x.
On the other hand, upgrade pressure may emerge if 1) Paiton's operational and financial performances improve, and 2) the company takes appropriate actions to lower its interest rate exposure such that the DSCR exceeds 1.3x on a sustained basis.
PT Paiton Energy Company (Paiton) 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)