TEXT-S&P puts Brooklyn Navy Yard Cogeneration on watch negative

Tue Nov 13, 2012 4:26pm EST

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Overview
     -- We are placing our 'B' senior debt rating on U.S. electricity and 
steam producer Brooklyn Navy Yard Cogeneration Partners L.P. (BNYCP) on 
CreditWatch with negative implications. 
     -- The CreditWatch placement reflects our view that the project's 
liquidity may be pressured and also reflects uncertainty over the extent of 
physical damage the plant sustained due to hurricane Sandy. 
     -- The recovery rating on the debt is '3', indicating meaningful (50% to 
70%) recovery in the event of a default.

Rating Action
On Nov. 13, 2012, Standard & Poor's Ratings Services placed its 'B' senior 
secured debt rating on U.S. electricity and steam producer Brooklyn Navy Yard 
Cogeneration Partners L.P. (BNYCP), on CreditWatch with negative implications. 
The CreditWatch placement reflects that, while we have not yet received 
financial information from the project through Sept. 30, the debt service and 
working capital reserves are backstopped by liquidity facilities that expire 
Nov. 30. If they are not renewed, the company's cash on hand may be 
insufficient to make its next principal and interest payment on April 1, 2013. 

In addition, the plant sustained unspecified damage as part of hurricane 
Sandy, and we expect that the project will provide an update on future 
operations as part of a financial disclosure that is pending. 

The recovery rating on the debt is '3' indicating meaningful recovery (50% to 
70%) in the event of a default. 

Rationale
The cogeneration facility sustained damage as a result of hurricane Sandy and 
is currently not operating. The latest financial report we have is for the 
second quarter, ended June 30, 2012.

The facility closure is likely to exacerbate project historical financial 
performance we consider to weak . The debt service coverage ratio has been 
around 1.0x and was expected remain at this level until 2016. We are uncertain 
of the extent of the damage and the related cost that hurricane Sandy has 
caused at the facility. Management has indicated that BNYCP has declared force 
majeure under its power sale and supply agreements. The project is expected to 
file an insurance claim that is likely to be greater than $5 million, but 
there could be delays in payments from the insurer. Furthermore, the project 
will continue to incur demand charges for supply of natural gas and other 
administrative expenses without receipt of any  revenues, including capacity 
payments, while it is shut. 

Given the lack of revenue generation for an undetermined amount of time, we 
expect that cash flow generation and debt service coverages will likely be 
weaker than previous quarters in the fourth quarter of 2012 and possibly for 
the first quarter of 2013.

BNYCP is a 220 megawatt (MW) to 300 MW gas- and oil-fired cogeneration 
facility in Brooklyn, N.Y. that can produce up to 1 million pounds of steam 
per hour. It has a 40-year power and steam purchase agreement (energy sales 
agreement) with Consolidated Edison Co. of New York Inc. (A-/Stable/A-2) that 
expires in 2036. The plant began operations in November 1996.

Liquidity
We are uncertain about the current level of liquidity at BYNCP. Based on the 
second quarter, ended June 30, 2012, the project had $12 million in 
unrestricted cash, an undrawn $18 million working capital facility, and a debt 
service reserve account in the form of letter of credit sized to the maximum 
remaining semi-annual principal and interest payment ($29.6 million based on 
the Oct. 1, 2035 debt service payment). 

The project made a principal and interest payment on Oct. 1, 2012, and we are 
uncertain as to the project's unrestricted cash position. Both the debt 
service reserve letter of credit and working capital facility are due on Nov. 
30, 2012, and we are uncertain if the project has made any draws and whether 
the maturity dates have been extended. The project also will be required to 
make an estimated interest and principal payment of $14 million on April 1, 
2013. 

Recovery analysis
The recovery rating of '3' indicates our expectation of a meaningful (50% to 
70%) recovery of principal in a payment default scenario. The default scenario 
assumes that operations remain at historic levels, resulting in about 1x 
coverage through 2016 but falls to low coverage when annual debt service 
increases in 2017. Under this scenario, cash would be exhausted, and all 
liquidity facilities would be fully drawn by 2022, leading to a default. We 
believe that the project would be reorganized rather than liquidated under the 
simulated default scenario, because it would generate significant cash flow 
available for debt service.
CreditWatch
Standard & Poor's will likely resolve this CreditWatch during the next 30 days 
as we hope to have a better understanding of the liquidity position at the 
project and the financial impact of hurricane Sandy on BNYCP, as well as the 
length of time the facility will remain closed after receiving third quarter 
financial information at the end of November.

Related Criteria And Research
Updated Project Finance Summary Debt Rating Criteria, Sept. 18, 2007
Ratings List
CreditWatch Placement

                             To            From
Brooklyn Navy Yard Cogeneration Partners LP  
  Senior secured debt            B/Watch Neg    B/Stable
   Recovery rating                3            3


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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