Research Update: Outook Revised To Negative From Stable On Panoche Energy Center LLC Because Of Potential Drops In Debt Service Coverage

On Feb. 25, 2013, we revised our outlook on Panoche Energy Center LLC (Panoche) to negative from stable, reflecting the potential for debt service coverage ratios to fall below 1.35x through the term of the debt as a result of carbon emissions costs. Panoche is currently in a dispute resolution process with its power purchaser, Pacific Gas&Electric Co. (PG&E; BBB/Stable/A-2) on the pass through of the project's greenhouse gas (GHG) emissions costs associated with the statewide cap-and-trade program. We also affirmed our 'BBB-' rating on Panoche's $321 million senior secured bonds due in 2029. Inability to fully pass through GHG emission costs will likely lead to lower cash flow generation and, as a result, the debt service coverage

...+ On Feb. 25, 2013, we revised our outlook on Panoche Energy Center LLC (Panoche) to negative from stable, reflecting the potential for debt service coverage ratios to fall below 1.35x through the term of the debt as a result of carbon emissions costs. Panoche is currently in a dispute resolution process with its power purchaser, Pacific Gas & Electric Co. (PG&E; ###/Stable/A-2) on the pass through of the project's greenhouse gas (GHG) emissions costs associated with the statewide cap-and-trade program. + We also affirmed our '###-' rating on Panoche's $321 million senior secured bonds due in 2029. + Inability to fully pass through GHG emission costs will likely lead to lower cash flow generation and, as a result, the debt service coverage ratio (DSCR) could be below 1.35x through the term of the debt. The dispute resolution process is still ongoing and is expected to be resolved late 2013 to mid-year 2014....

Research Update