-- 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.
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.
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.
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,
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.
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
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