Moody's rates HCP Acquisition loan B1

Moody's Investors Service said it assigned a provisional B2 corporate family rating to HCP Acquisition Inc. and a provisional B1 rating with a loss-given-default assessment of LGD3 (37%) to its $427.9 million senior secured first-lien bank credit facility due 2014.

The outlook is stable.

HCP is a newly formed entity indirectly established by Harbinger Capital Partners to acquire 100% of Calpine Power Income Fund and to acquire from Calpine Canada Power Ltd. the portion of Calpine Power Income Fund's indirect subsidiary Calpine Power LP that Calpine Power Income Fund does not currently own. Included in the acquisitions are 100% interests in three fully contracted power generation facilities.

HCP will fund the acquisitions with the new first-lien bank debt, with $171.2 million of senior secured second-lien bank debt due 2015 and C$254 million of equity and deeply subordinated debt.

The agency said the ratings reflect HCP's high leverage following the acquisitions, the complexity of HCP's organizational structure, potential hedging issues arising out of the fact that the debt will be raised in dollars at floating rates and swapped into Canadian dollars at fixed rates and the fact that prior to closing, HCP had only limited ability to perform due diligence on the assets.

The ratings are supported by the fully contracted nature of the underlying power plants, the generally strong investment-grade credit ratings of the power purchasers, the fact that the plants providing the majority of the cash flow are subject to tolling agreements, which substantially reduces HCP's exposure to fuel price and volume risk, and the diversity of the plants by geography and power purchasers, Moody's said.

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