Moody's cuts outlook on Maryland Economic Development Bonds
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.