Fitch downgrades Midland

Fitch Ratings said it downgraded to B+ from BB- the ratings on Midland Cogeneration Venture LP's taxable secured lease obligation bonds due 2006. Fitch also downgraded Midland's tax-exempt secured lease obligation bonds due 2009 to CCC+ from BB-. The ratings have been removed from Rating Watch negative.

Fitch predicted that Midland may fully deplete its cash reserves and default on the debt service portion of rent in 2008. Midland will rely upon its cash reserves to meet rent payments, as revenues earned under the power purchase agreement are insufficient to fully cover both natural gas costs and rent obligations.

Midland's management has not indicated that the company will file for bankruptcy. However, taking into account Midland's projected financial performance and sizable but declining hedged position, Fitch said it cannot ignore the possibility of a voluntary bankruptcy. Thus, the rating on the taxable bonds reflects the potential for a voluntary bankruptcy filing before they mature in July 2006.

The rating also reflects the recovery prospects for the taxable bonds under a hypothetical bankruptcy scenario, as bondholders would benefit from the substantial value of Midland's hedging agreements and cash reserves, the agency said.

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