Moody's cuts out­look on Mary­land Eco­nomic De­vel­op­ment Bonds

The Pak Banker - - Front Page -


Global rat­ing ag­necy Moody's has changed the out­look to neg­a­tive and af­firmed the A2 rat­ing on the Mary­land Eco­nomic De­vel­op­ment Cor­po­ra­tion's (MEDCO) Util­ity In­fra­struc­ture Re­fund­ing Rev­enue Bonds (Univer­sity of Mary­land Col­lege Park Project), 2011 Se­ries with about $37.9 mil­lion of debt out­stand­ing.

The change in the out­look to neg­a­tive from sta­ble re­flects the po­ten­tial in­creased oper­at­ing risks re­sult­ing from the elim­i­na­tion of the cur­rent Long Term Ser­vice Agree­ment ( LTSA) with Gen­eral Elec­tric (GE, rated Aa3 sta­ble) when it ex­pires in Septem­ber 2013. While the Op­er­a­tor has ex­pe­ri­ence with the as­set and is expected to en­ter into a ma­jor main­te­nance and parts agree­ment with GE in lieu of re­new­ing the LTSA, the as­set is a tri-gen­er­a­tion fa­cil­ity whose com­plex tech­nol­ogy re­quires spe­cial­ized and ex­pe­ri­enced ma­jor main­te­nance and the Man­age­ment and Oper­at­ing Agree­ment ( MOMA) has nu­mer­ous and de­mand­ing per­for­mance stan­dards the Op­er­a­tor must achieve. In ad­di­tion, past is­sues with the GE tur­bines in­di­cates a need to main- tain some GE re­lated pro­tec­tions as the Project has not achieved its 95% avail­abil­ity re­quire­ment for many years. The Univer­sity off taker is well aware of the in­creased risk in re­mov­ing the LTSA and is expected to sup­port the Project if needed, but as the as­set ages the off taker may be less in­clined to do so, es­pe­cially given that new cam­pus fa­cil­i­ties have not been con­nected to the MEDCO sys­tem for elec­tric­ity.

The rat­ing also con­sid­ers the oper­at­ing risks as­so­ci­ated with the tri­gen­er­a­tion fa­cil­ity, which uti­lizes proven tech­nol­ogy. How­ever, the Project re­quires spe­cial­ized oper­at­ing skills and on­go­ing main­te­nance and cap­i­tal in­vest­ment to main­tain the strong per­for­mance nec­es­sary to com­ply with nu­mer­ous per­for­mance stan­dards re­lated to the quan­tity, qual­ity, pres­sure, and avail­abil­ity of the steam, elec­tric, and chilled wa­ter com­po­nents of the Project, as well as its ef­fi­cient use of fuel. Key to the rat­ing is the lack of a ter­mi­na­tion pay­ment to bond hold­ers if the Univer­sity ter­mi­nates the Project agree­ments for ei­ther a sus­tained in­stance of force ma­jure or the in­abil­ity of MEDCO to main­tain per­for­mance stan­dards.

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