TEXT-Fitch release on Kleen Energy Systems LLC

(The following statement was released by the ratings agency)

May 6 - Fitch Ratings expects to assign ratings of 'BBB-' with a Stable
Outlook to Kleen Energy Systems, LLC's (Kleen) proposed issuance of a $450
million, term loan A and a $315 million term loan B (the term loans). The
proceeds of the proposed issuance will be used to finance the construction of a
generating facility (the project) near the city of Middletown, Connecticut. The
term loan A and the term loan B will mature eight and 14 years, respectively,
after the commercial operation date. Energy Investors Funds will indirectly own
an 80%-90% interest in Kleen through its subsidiaries United States Power Fund
II LP, USPF II Institutional Fund LP, and United States Power Fund III LP. The
balance of the ownership interests will be held by O&G Industries (O&G) and
White Rock Holdings Associates LLC, a project development company owned by O&G
and individual investors.

Kleen is a special-purpose company created solely to develop, own and
operate the project, which will consist of a 620-MW dual-fuel, combined-cycle
electric generating facility. O&G will construct the facility under a
fixed-price, turnkey EPC contract with a guaranteed completion date of Nov. 30,
2010. Once commercial operation is achieved, North American Energy Services
will operate the facility under an O&M agreement. The sponsors are currently
negotiating with the turbine manufacturer, Siemens Power Generation, to perform
major maintenance services.

Kleen has entered into a 15-year capacity agreement for 620 MW with
Connecticut Light and Power (CL&P). The capacity agreement includes a price
reopener provision that allows for amendment of the contract under certain
circumstances. The facility's energy output will be purchased by a tolling
counterparty under a seven-year tolling agreement. The sponsors have indicated
that they will identify the tolling counterparty prior to the proposed
issuance. The parent company of the tolling counterparty will partially
guarantee the tolling counterparty's obligations under the tolling agreement.
The terms of the tolling agreement have not been finalized, though the sponsors
intend to execute the agreement prior to the proposed issuance. The sponsors'
financial projections reflect Kleen's performance as a merchant facility once
the tolling agreement expires.

Fitch has evaluated Kleen's credit quality on a stand-alone basis,
independent of the credit quality of its owners. The expected ratings are based
on Kleen's financial performance during the term of the tolling agreement,
between 2010 and 2017. Kleen's credit quality is not constrained by the
project's financial performance during the post-2017 merchant period, as
Kleen's total debt service burden will decline sharply after the term loan A
matures and the tolling agreement expires. Fitch assessed Kleen's financial
performance using cash coverage of consolidated scheduled debt service, defined
as scheduled amortization and interest on both of the term loans. Fitch regards
the risk of payment default as identical for both of the term loans.

Base case debt service coverage ratios (DSCRs) range between 1.55 - 1.60
times (x) throughout the tolling period. The lenders will be exposed to
completion risks, as the EPC contractor could deliver a facility that falls
short of projected technical performance without paying liquidated damages. If
completion risks are taken into account, potential reductions in projected
operating performance could lower DSCRs to the 1.45x - 1.50x range due to
performance-linked, market-based penalties in the tolling agreement. However,
DSCRs remain above 1.4x under both low availability and high natural gas price
conditions when combined with the effects of weaker than projected operating
performance.

Kleen will derive 60% of its cash flow from the capacity agreement with
CL&P during the tolling period. If CL&P's credit quality falls below Kleen's
credit quality on a stand-alone basis, the increased counterparty risk could
lead to a downgrade in Kleen's rating. Fitch has assigned CL&P a long-term
Issuer Default Rating of 'BBB' with a Stable Outlook. Similarly, the credit
quality of the tolling counterparty's parent is considered a potential
constraint on Kleen's credit quality during the tolling period, when the
tolling counterparty is the source of 40% of Kleen's cash flow. The sponsors
have indicated that the parent company of the tolling counterparty will be a
publicly-rated entity with an Issuer Default Rating of 'BBB+' and a Stable
Outlook.
Primary credit strengths:
--Fixed-price capacity and tolling agreements with investment-grade
counterparties.
--Proven, reliable technology.
Primary credit concerns:
--Partial exposure to completion risks.
--The capacity agreement includes a price reopener provision.
-- The parent of the tolling counterparty will provide a partial guarantee
under the tolling agreement.
(New York Ratings Team)