Fitch Affirms East Coast Power At `BBB-`.

Business Editors

CHICAGO--(BUSINESS WIRE)--Dec. 13, 2001

Fitch has affirmed its rating of East Coast Power LLC's (ECP) senior secured notes at `BBB-`. This rating action is a result of a recent restructuring of power purchase agreements and capital structure.

East Coast Power holds the equity interests in four generating facilities, representing 1,209 MW of natural-gas fired gas turbines in combined cycle and simple cycle configurations. Each of three original facilities was developed with project level debt. The fourth facility is approaching commercial operation and is being developed primarily with ECP internally generated cash flow and minimal equity contribution.

Two long-term power purchase agreements (PPAs) with Public Service Electric and Gas (PSE&G) have been restructured such that ECP is no longer a party to the PPAs. ECP entities entered into two new long-term agreements with El Paso Merchant Energy (EPME) for the output previously committed to PSE&G. Although the terms of the EPME agreements are substantially different than the terms of the PSE&G PPAs, ECP's exposure to price and volumetric risks is minimal.

As required under corresponding loan agreements, ECP redeemed the entire outstanding project-level debt at the two facilities with PSE&G PPAs. Furthermore, ECP reduced the outstanding amount of ECP senior debt by approximately $176 million. The equity sponsor provided funds for the debt redemption.

ECP has acquired several of the minority ownership interests in the projects held by third party investors. As a result of the recapitalization, three facilities are fully owned by ECP and are unencumbered by project-level debt. As general partner, ECP controls approximately 67% of the cash flow from the fourth facility. ECP's share of this cash flow is first applied to service a subsidiary-level term loan before any residual cash is distributed to ECP.

In a fairly conservative base case projection of ECP cash flow, debt service coverage ratios (DSCRs) average 1.77 times (x) through the remaining life of tranche A debt in 2008, 1.86x between 2009 and the expiration of tranche B debt in 2012, and 2.56x between 2013 and the expiration of tranche C debt in 2017. In the base case, approximately 5% of ECP cash flow is attributed to merchant sales, which contributes approximately 0.10x to DSCRs.

ECP is substantially owned by Mesquite Investors, which is indirectly owned by El Paso Corp and Limestone Electron Trust. A third party investor holds a 1% preferred share of ECP.