OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB' rating on Topaz Solar Farms, LLC's (Topaz) $1.100 billion ($1.068 billion outstanding) senior secured notes due September 2039. The Rating Outlook is Stable.

The rating affirmation reflects the project's stable operations to date as well as a long-term financial profile anchored by a fixed price power purchase agreement (PPA) with an investment grade counterparty. Modest leverage and gradually increasing projected debt service coverage ratios (DSCR) further support the rating.

KEY RATING DRIVERS

Revenue Risk - Price: Midrange
Stable Contracted Revenues: The fixed-price, 25-year PPA with Pacific Gas & Electric (PG&E; rated 'BBB+'/Outlook Positive by Fitch) extends one month beyond debt maturity. The PPA provides reimbursement for curtailment directed by the utility.

Revenue Risk - Volume: Midrange
Solid Solar Resource: Total generation output in Fitch's rating case is based on a one-year P90 estimate of electric generation to mitigate the potential for lower-than-expected solar resource. The project can meet debt obligations under a one-year P99 generation scenario.

Operation Risk: Midrange
Proven Technology and Experienced Operator: Thin-film panel technology has a long operating history, which mitigates plant performance risks. First Solar, as the operator, has a track record of high plant availability. Long-term agreements support routine and unscheduled maintenance needs. Fitch's financial analysis incorporates operating cost increases to mitigate unforeseen events including the risk of contractor replacement.

Debt Structure: Stronger
Conventional Debt Structure: The senior-ranking, fully amortizing, fixed-rate debt benefits from a six-month debt service reserve and strong 1.20x forward and backward looking debt service coverage equity distribution test.

Increasing DSCR Profile
Base case DSCRs average 1.81x with a minimum of 1.67x. Fitch's rating case includes stresses that increase expenses and reduce energy output, resulting in an average DSCR of 1.58x with a minimum of 1.50x. In both scenarios, annual DSCRs generally increase over time, reflecting a profile supportive of the rating.

Peer Comparison: Topaz's rating case financial profile is consistent with Fitch's investment grade criteria and higher than Solar Star Funding, LLC's ('BBB-'/Stable Outlook), which has an average rating case DSCR of 1.32x. A privately rated solar project financing rated one notch above Topaz demonstrates average rating case DSCRs in excess of 1.75x.

RATING SENSITIVITIES

Negative - Inadequate Operating Results: Energy production persistently underperforming original projections or expenses persistently higher than the forecast that result in DSCRs below 1.30x would result in a downgrade.

Positive - Demonstrated stable operating and financial performance consistently above base case expectations may result in a rating upgrade.

CREDIT UPDATE

Through the early stages of project operations, Topaz has displayed a very stable profile. Historical data, beginning in early 2013 when the first panel blocks began coming online, has shown generation and availability mostly above sponsor forecasts. In particular, since April 2015 when the project began collecting revenue toward debt repayment, actual output was 1% above original P50 estimates and availability averaged a strong 99.7%.

Topaz has only made one payment of principal and interest to date (Sept. 30, 2015), so a full assessment of financial performance is premature. However, in the nine months ending Dec. 31, 2015, cash flow available for debt service was strong at $177.5 million yielding a DSCR of 2.67x for the first payment along with letter of credit fees. Despite lower seasonal PPA pricing in the first three months of 2016, Topaz appears on track to generate results better than Fitch's base case financials projections in its first full year.

Fitch's financial cases are unchanged from the previous review. In the base case, Fitch utilizes the P50 electric generation estimate, 97% availability, 0.9% annual panel degradation, a 2% energy output reduction, and a 2.5% inflation assumption. The resulting profile produces an average DSCR of 1.81x and a minimum of 1.67x. Fitch's rating case utilizes the same degradation, output reduction, and inflation assumptions but further sensitizes performance using the one-year P90, a 10%-15% increase in costs, and a 96% availability rate after operating year 15. The resulting profile produces an average DSCR of 1.58x and a minimum of 1.50x. The minimum and average rating case metrics are well above the minimum threshold for investment grade. Moreover, annual DSCRs are projected to increase over time, providing a greater cushion on debt repayment during the outer years, when financial performance is least certain.

TRANSCATION SUMMARY

Topaz is a 550 MW AC solar photovoltaic (PV) facility operating on 4,900 project-owned acres in San Luis Obispo County, California. Topaz employs PV modules designed and manufactured by First Solar using commercially proven thin film cadmium telluride PV cell technology mounted at a fixed tilt of 25-degrees with no tracking risks.