PRESS RELEASE: Fitch Cuts CRC Breeze Finance
Fitch Ratings-London-05 June 2009: Fitch Ratings has today downgraded CRC
Breeze Finance S.A.'s (Breeze 2) EUR283.2m class A notes (XS0253493349) to 'BB'
from 'BBB' and EUR43.4m class B notes (XS0253496441) to 'B' from 'BB+'. The
Outlook on class A is Negative, while that on class B is Stable. Breeze 2 is a
Luxembourg SPV that issued three classes of notes in May 2006 for an amount of
EUR470m to finance the acquisition and completion of a portfolio of wind farms
located in Germany and France, as well as establishing various reserve accounts.
The notes will be repaid from the cash flow generated by the sale of the energy
produced by the wind farms, mainly under regulated tariffs.
The downgrades reflect Fitch's opinion that the energy production achievable
by the wind farm portfolio is materially lower than that originally forecasted
and that operating expenditures were significantly underestimated in the
original budget.
Energy output during 2008 at 540.9 GWh was some 12.5% and 19.6% lower than the
10 year-P90 and P50 forecasts respectively. This was partly due to below-average
wind conditions as well as lower-than-expected technical availability (
approximately 96%). Even after taking such factors into consideration, however,
the portfolio's performance remains well below expectations (5.5% and 13% below
the 10-year P90 and P50 estimates adjusted for actual wind conditions and
availability).
Fitch has been informed that the very low wind conditions experienced in
Germany during the first months of 2009 caused energy production to be some 42%
below P50 as of end-April 2009. As a result, based on its current forecast,
Breeze 2 expects that in order to make the full scheduled principal repayment on
the class A bonds on the November 2009 payment date it will have to draw about
20% (some EUR2.4m) of the class A debt service reserve (DSR). At the same time
it expects to draw the full amount of the class B DSR (EUR1.1m) and still end up
with a EUR2.5m shortfall on the EUR3.6m class B payment amount (part of the
interest payment and the full principal repayment), which will need to be
deferred. Although Fitch views the 2009 wind conditions experienced as a one-off
extreme stress to the transaction, the agency is of the opinion that the
negative effects on Breeze 2's ability to service its debt are amplified by the
original over-estimation of the portfolio's energy yield.
Cash flows available for debt service are further negatively impacted by
higher-than-anticipated operational costs. At around EUR9.9m in 2008, these
stood some 16% above budget as a result of the under-estimation of various
expenses, portfolio management and advisory costs in particular. Fitch does not
expect these costs will revert back to the original budgeted amount.
Various technical issues have been affecting the performance of a number of
projects. The Korschenbroich wind farm has not been operating since September
2008 due to problems with the blades installed on its 5 Nordex S77 turbines.
Replacement blades have already been installed and the approval allowing normal
operation is expected soon from the local authority. Six Zollern & Dorstener
gearboxes failed due to a serial defect and had to be substituted. Breeze 2
reports that all gearboxes are covered by a five-year warranty, but further
failures and replacements are expected in the near term. Fitch notes that Breeze
2 was taking longer to find a solution for such problems compared to other wind
farm transactions it rates. Fitch will continue to monitor the company's
management of the projects' operations. Discussions with turbine manufacturer
Vestas, are ongoing about the foundations of the 60 V80 and V90 turbines in the
portfolio. Breeze 2 awaits the report of a court-appointed expert in relation to
the legal proceedings on the Bedburg wind farm before deciding on the most
adequate approach to reaching a solution on the technical problem.
Under Fitch base case operating conditions financial coverage for class A is
expected to remain between 1.4x and 1.25x throughout the life of the debt.
Further increases in operational costs or poor wind conditions, however, are
likely to pose a significant risk to the borrower's ability to meet debt service
payments without relying on the cash reserve. It should be noted that the
replenishment of the DSRs (for both class A and B) is subordinated to debt
service payments on the rated notes. Given the anticipated EUR2.4m drawing on
the class A DSR in November 2009 and the simultaneous EUR2.5m shortfall in class
B debt service payments, the class A reserve will be replenished only after the
payment shortfall on the class B is fully met. This is expected to take, under
normal operating conditions, approximately 12 months. The shortfall expected to
affect the class A DSR is the reason for the Negative Outlook on the senior
notes.
Financial coverage for the class B notes is thin (average debt service
coverage ratio under the Fitch base case of 1.07x) and the timely payment of
interest and scheduled principal appears to rely solely on favourable wind
conditions, control of operational expenditures and active and professional
management of the wind farms by the company. The rating, as well as the Outlook,
on the class B notes reflects the bond's terms and conditions, in that any
missed payment of interest and principal is deferred to the following payment
date (or after the full repayment of class A bonds) - i.e. a monetary default
does not translate into a contractual default. In Fitch's opinion it is unlikely
that Breeze 2 will meet all the scheduled debt service payments on the class B
notes in a timely manner and fully redeem such bonds on their expected final
repayment date of May 2016. The following 10 years up to the class A maturity
date, however, provide comfort about the borrower's ability to ultimately repay
class B.
Contacts: Federico Gronda, London, Tel: +44 (0) 20 7682 7464; Dan Robertson: +
44 (0) 20 7682 7381.
Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email:
julian.dennison@fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available
on the agency's public site, www.fitchratings.com. Published ratings, criteria
and methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.
(END) Dow Jones Newswires
06-05-091149ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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