Fitch: Construction Delays at Eten Unlikely to Trigger PPA Termination

According to Fitch Ratings, the Planta de Reserva Fria de Generacion de Eten (Eten) project is approximately 2.5 months behind schedule and fast approaching the scheduled commercial operation date (COD) under the concession agreement of June 12, 2015. Sargent & Lundy, the independent engineer (IE), considers a June COD to be more realistic than the EPC contractor's May 30 scheduled COD. In its latest monitoring report from earlier this month, it expressed doubts regarding the feasibility of achieving the date. Should the project fail to reach COD by the end of June, Fitch would likely take a negative rating action to reflect the severe construction delay, revenue reduction, and increased, yet unlikely, risk of termination of the power purchase agreement (PPA).

Fitch's primary concern regarding the construction delay is the possibility of termination of the PPA for failure to reach COD by 90 days after the June 12th deadline, or Sept. 10, 2015. The current construction status appears to mitigate that risk. Per the May IE report, the engineering and procurement was 100% complete, construction was 'largely complete' and commissioning was reported to be 90.9% complete through April 24, 2015, which was ahead of schedule for the May 30, 2015 scheduled COD. The first fire, scheduled for May 9, 2015 according to the IE report, occurred on May 20, 2015. The sponsors currently expect to achieve COD by the first week of June.

Should the EPC contractor fail to achieve COD by June 12, 2015, the project will be responsible to pay liquidated damages (LDs) according to the PPA. The project should be able to pay these LDs with the proceeds from the LDs paid under the EPC contract which mirror the values in the PPA but were due three months earlier. Any shortfall in amounts collected from the EPC contractor, up to 100% of the total, would be covered by the investment grade demand letter of credit from Banco BTG Pactual S.A. (rated 'BBB-'; Outlook Positive).

The EPC contractor is ultimately responsible for project completion; however, the equipment provider, General Electric, is contractually responsible to Cobra to achieve successful performance testing within 40 days of the first fire or June 29, 2015. Despite the progress and guarantees in place, Fitch maintains a cautious view on the progress and continues to monitor the situation and the financial impact on the debt issuance.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Thermal Power Projects' (June 2013);

--'Rating Criteria for Infrastructure and Project Finance' (July 2012).

Applicable Criteria and Related Research:

Rating Criteria for Thermal Power Projects

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753208

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

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Contacts:

Fitch Ratings
Primary Analyst
Benjamin Tano
Director
+1-212-612-7822
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Yvette Dennis
Senior Director
+1-212-908-0668
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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