Moody's rates Wolf Hollow loans B1, B2

Moody's Investors Service said it assigned B1 ratings to Wolf Hollow I LP's proposed $130 million first-lien senior secured term loan B due 2012, $110 million first-lien synthetic letter-of-credit facility due 2012 and $50 million first-lien working capital facility due 2010. Moody's also assigned a rating of B2 to the proposed $110 million second-lien senior secured term loan due 2012.

The outlook is stable.

Proceeds, along with $121 million of equity provided by Stark Power Generation I Holdings LLC, will finance the acquisition of the Wolf Hollow power generating facility by Stark Power from Carroll Energy Inc. and fund various reserve accounts, closing costs and settle certain outstanding contract disputed amounts with the project's former EPC contractor, Stone & Webster Inc.

The ratings incorporate an existing power purchase agreements, offtake contracts that provide a pass through of fuel costs, plant operations supported by operations and maintenance and long-term services agreements with experienced and proven counterparties, a meaningful level of liquidity available to the project, a cash sweep mechanism that provides for 100% of the project's excess cash flow available to repay lenders and a level of de-levering of the first-lien debt expected prior to final maturity, the agency said.

These strengths are offset by a limited operating record and start-up performance problems, a heat rate higher than the required threshold under the Exelon PPA, the relatively weak cash flow coverage metrics expected to be achieved by the project, the weak credit quality of the project's natural gas supplier, El Paso Merchant Energy LP and additional first-lien claim on the assets by J. Aron under the terms of its PPA.

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