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TEXT-S&P revises Harper Lake Solar Funding outlook to positive
September 26, 2012 / 7:22 PM / 5 years ago

TEXT-S&P revises Harper Lake Solar Funding outlook to positive

Overview
     -- The outlook on Harper Lake Solar Funding Corp. has been revised to 
positive from stable.
     -- The positive outlook reflects the continued strong performance of the 
project and the expectation that debt service coverage ratios will remain high 
even following the expiration of the fixed-price energy payments. 
     -- The rating on Harper Lake Solar Funding Corp. has been affirmed at 
'BBB-'. 
     -- The project is supported by high capacity revenues; 100% of its energy 
revenues are now tied to California's short run avoided cost (SRAC) pricing 
regime.

Rating Action
On Sept. 26, 2012, Standard & Poor's Ratings Services revised its outlook to 
positive from stable on Harper Lake Solar Funding Corp. In addition we 
affirmed our 'BBB-' rating on Harper Lake Solar Funding Corp.
Rationale
The rating affirmation and positive outlook reflect the increased certainty we 
have that the project will continue to perform strongly even with 100% of its 
energy revenues now derived from SRAC pricing. Harper Lake Solar is a funding 
corporation, the bonds of which, issued in 1998, were used to refinance the 
debt of two project partnerships: Luz Solar Partners Ltd. VIII (SEGS VIII) and 
Luz Solar Partners Ltd. IX (SEGS IX). Each project is an 80-megawatt (MW) net 
solar electricity generating system located in California's Mojave Desert. 
Output is sold to Southern California Edison Co. (SCE; BBB+/Stable/A-2) under 
standard offer No. 2 purchase power agreements (PPAs) through the term of the 
debt. 
  
Starting in May 2012, the project's energy revenues are now governed solely by 
California Public Utilities Commission-approved SRAC prices. Prior to May 
2012, the project received a fixed energy price for 75% of its energy output 
while the remaining 25% of output was subject to SRAC pricing. Under the new 
SRAC pricing regime, the project's power price will be derived from a fixed 
heat rate through 2014 and will be subject to the market heat rate in 2015 and 
thereafter. Above-market capacity payments provide a stable source of cash to 
cover fixed costs and debt service. Even in light of the more variable energy 
revenues, we believe sound operations and strong capacity payments support the 
rating. We have updated our base case to include Standard & Poor's current 
energy pricing assumptions for the region, and we expect the project to 
achieve an average debt service coverage ratio (DSCR) above 1.6x through the 
life of the debt even with the greater volatility of its energy revenues.

The project continues to perform well, with plant availability of 69.2% and 
84.6% for SEGS VIII and SEGS IX, respectively, for the first half of 2012. 
This number includes planned outages, however. The project's unscheduled 
outage rate remains close to 0%. Energy generation during the first half of 
2012 was 219,678 megawatt-hours (MWh) with average capacity factors of 28.7% 
and 34.2% for SEGS VIII and SEGS IX, respectively. The project DSCR continues 
to be strong, around 2.5x for both the trailing 12 months ended June 30, 2012 
and the calendar year ended Dec. 31, 2012. The strong DSCR includes almost a 
full year of fixed-price energy pricing for 75% of the project's output. Under 
100% SRAC pricing, we expect these coverage levels to fall but to remain in 
line or above the current rating. 


Liquidity
The project maintains a six month debt service reserve in the form of a letter 
of credit provided by Wells Fargo N.A. (AA-/Negative/A-1+).

Outlook
The positive outlook reflects Standard & Poor's expectation of continually 
strong debt service coverage ratios even with ''Harper Lake's full exposure to 
SRAC pricing for its energy payments. We would raise the rating if the project 
demonstrates its ability to achieve sustained DSCRs above 1.6x under a full 
year of SRAC pricing, taking into consideration the current low gas price 
environment. We would revise the outlook to stable if the project were to 
financially underperform under the new pricing regime.
Related Criteria And Research
     -- Updated Project Finance Summary Debt Rating Criteria, Sept 18, 2007
     -- Project Finance: Key Credit Factors: Methodology And Assumptions On 
Risks For Concentrating Solar Thermal Power Projects, Oct. 27, 2009
Ratings List
Ratings Affirmed; Outlook Revised
                                         To            From 
Harper Lake Solar Funding Corp.  
 Senior Secured                         BBB-/Positive/--    BBB-/Stable/--  


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.

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