Sep. 28, 2009 (Business Wire) -- Fitch Ratings has affirmed its 'BBB-' rating for AES Puerto Rico, L.P.'s (AES-PR) $161.9 million tax-exempt bonds due 2026 and $33.1 million taxable bonds due 2022. The Rating Outlook is Stable. The bonds were issued by the Puerto Rico Industrial, Tourist, Educational, Medical, and Environmental Control Facilities Financing Authority. Fitch has evaluated AES-PR's credit quality on a stand-alone basis, independent of the credit quality of its owner, AES Corporation (Issuer Default Rating of 'B+' with a Stable Outlook by Fitch).
The rating reflects contracted revenues, generally stable operating performance and financial structure and protection consistent with an investment grade rating. The rating also reflects availability risk, heat rate risk and ash management costs not directly reimbursed by the power purchase agreement (PPA). Revenue stability derives from the PPA with Puerto Rico Electric Power Authority (PREPA; IDR of 'A-' with a Stable Outlook) which extends beyond the term of the rated debt.
The PPA is a modified tolling agreement subject to an average availability requirement and guaranteed heat rates. Forced outages in late 2008 and early 2009 were a consequence of boiler tube leaks that lowered average availability below the 90% threshold required under the PPA to receive full capacity payments. Repairs on the affected unit and planned maintenance later this year on the second unit are expected to resolve the cause of these outages, and Fitch expects AES-PR to resume earning full capacity payments by the end of this year.
AES-PR is addressing its ash management expenses by focusing primarily on beneficial uses on the island. Direct utilization of dry ash has been relatively low; alternatively, dry ash has been processed into manufactured aggregate successfully marketed for structural fill and rural road projects on the island. Off-island demand for aggregate has been demonstrated but at a net cost to AES-PR due to transportation expenses. Fitch expects that ash management costs will remain at acceptable levels.
Credit metrics for AES-PR have been slightly lower than projected, with debt service coverage levels (DSCR) of 1.70 times (x) in 2007 and 2008, and an expected DSCR of 1.64x for 2009. In the medium term, Fitch expects DSCRs will be in a range of 1.4x to 1.6x, considering the historical availability and heat rate ranges. The projected DSCR ratios are aligned with the investment grade category.
The AES-PR project is a 454.3-megawatt coal-fired circulating fluidized bed combustion power plant in Guayama, Puerto Rico. The plant delivers electric energy and capacity to PREPA, a public power utility, and steam to Phillips Puerto Rico Core, Inc. under long-term contracts. AES-PR is a low cost source of power and a good fit with PREPA's fuel diversification strategy. PREPA serves an island system with no electric competition.
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