Moody's cuts Midland Cogeneration bonds to B1

Moody's Investor's Service said it downgraded the ratings of the lease obligation bonds of the Midland Cogeneration Venture.

The securities downgraded to B1 from Ba3 are the $73 million (originally $100 million) secured subordinated lease obligation bonds issued by Midland Funding Corporation II and the $200 million secured subordinated lease obligation bonds issued by the Midland County Economic Development Corp., for which the underlying cash flows are derived from Midland Cogeneration Venture LP.

The ratings remain under review for further downgrade.

Moody's said the downgrade and review is prompted by: (1) A reassessment of the economic viability of the Midland Cogeneration Venture project in view of high natural gas prices; and 2) The potential for a reduction in capacity payments in 2007 as a result of a "regulatory-out" provision in the project's power purchase agreement.

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