TEXT-Moody's release on Boston Generating LLC

(The following statement was released by the ratings agency)

Aug 1 - Moody's Investors Service placed the B1 first lien senior secured rating and the B3 second lien senior secured rating of Boston Generating, LLC (Boston Gen) under review for possible downgrade.

The review for possible downgrade reflects the project's recent poor financial performance, which has resulted in weakened financial metrics. Poor performance has been caused by an uneconomic operating profile, exposure to volatility in natural gas pricing, problems with the hedging agreements as well as the take-or-pay obligation under the Distrigas supply contract. In addition, low off-peak spark spreads primarily caused by prices being set by lower cost baseload resources in NEPOOL have resulted in lower than forecasted energy revenues. These factors have contributed to the project's lower than forecasted levels of funds from operations (FFO) over the last 18 months. Also, minimum interest coverage and maximum leverage covenants are experiencing pressure from lower levels of compliance EBITDA. Through March 31, 2008, the project has been able to meet its minimum 1.05x DSCR and maximum 11.0x senior debt to EBITDA ratio tests due to a contribution from a restricted cash reserve at the project level. This reserve is expected to be drawn upon in the next two calculation periods in order to ensure compliance with the aforementioned covenants.

The review will consider the lack of material de-levering of the term loan to date given that the project has not been generating the level of excess cash flow that was initially projected. From the 2006 refinancing, the project has only reduced the original $1.130 billion 1st lien term loan to approximately $1.115 billion. As of March 31, 2008 outstanding senior debt, consisting of the 1st lien Term B, the 2nd lien Term C, and drawn amounts under a revolving credit facility is approximately $1.507 billion. Given the lack of meaningful paydown of the senior debt, which in Moody's view will continue to be lower than expected, Moody's believes refinancing risk has significantly increased relative to 2006.

The review will also consider Boston Gen's capacity to improve financial performance and the ability to achieve financial metrics more commensurate with the long term ratings. While Boston Gen's credit metrics are expected to remain technically compliant, Moody's will closely examine the Project's available liquidity position with a focus on any potential covenant breach. Moody's will also measure the increased financing risk due to the continued lack of debt reduction under the cash sweep mechanism. In addition, Moody's review will focus on the availability of liquidity and the current and projected value of installed capacity in the constrained Boston load pocket.

Boston Gen is a 2,970 MW natural gas-fired portfolio of assets that sells power into the New England Power Pool. The assets are located in close proximity to the Boston metro area. Boston Gen is indirectly owned by US Power Generating Company. (New York Ratings Team)