Moody's rates O&M loans Ba3

Moody's Investors Service said it assigned a Ba3 rating to the senior secured credit facilities of O&M Star Generation LLC, including a $259 million senior secured term loan facility due 2014 and a $19 million senior secured pre-funded letter-of-credit facility due 2014.

The outlook is stable.

Proceeds from the term loan were used to fund the acquisition of certain equity interests in Orange Cogeneration LP, Polk Power Partners LP and subsidiaries of Arroyo Energy Investors LP and to acquire from certain indirect subsidiaries of General Electric Co. GE's $48 million senior secured loan facility to Power Polk, a preferred limited partnership interest in Power Polk Partners and the right to receive certain payments from Orange Cogeneration equal to 5% of Orange Cogeneration's distributable cash.

The agency said the ratings for O&M Star's credit facilities are supported by the project's cash flow stability provided by the long term power purchase agreements, a large proportion of capacity revenues as percent of total power purchase agreements revenues, tested and proven technology and strong historical operational performance, the ownership of the company by AGI Highstar Capital II LP and OTPPB US Power LLC, a funded letter-of-credit facility providing for 6 months of debt service, currently favorable fuel supply arrangements and a highly experienced and proven management team.

The ratings also reflect the following areas of credit concern: limited geographic diversity of the sources of cash flow, the normal operating risk associated with power project assets, the relatively high leverage, the structurally subordinated position of the lenders to the holding company, in relation to debt at the Orange project, the limited hard asset security that is available to the lenders, a significant amount of refinancing risk and uncertainty associated with the extension and/or replacement of the currently favorable gas supply arrangements upon their expiration in 2014 and 2015.

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