Fitch Affirms Lea Power Partners, LLC at 'BBB-'; Outlook Stable.

CHICAGO -- Fitch Ratings has affirmed the 'BBB-' rating of Lea Power Partners, LLC's (LPP) senior secured bonds due 2033. The affirmation is based on Fitch's current view of LPP's long-term financial performance, which remains consistent with original projections. The Rating Outlook is Stable. The Hobbs generating facility recently achieved commercial operations, and the results of performance testing indicate key operational metrics will correspond to initial assumptions. While LPP has experienced cost overruns and completion delays, the sponsor addressed these risks by securing a construction letter of credit (LOC) in conjunction with the issuance of the bonds. The construction LOC is sized to repay the secured bondholders if the facility is not completed in a timely manner.

The rating is based on LPP's long-term financial profile, which is subject to changes in facility dispatch that could result in greater than expected funding requirements for the major maintenance reserve. Fitch has evaluated LPP's credit quality on a stand-alone basis, independent of the credit quality of its owners. LPP is an indirect, wholly owned subsidiary of ArcLight Energy Partners Fund III, LP (ArcLight).

The Hobbs facility achieved commercial operations on Sept. 16, 2008, 14 weeks after the June 1 commercial operation date required by the power purchase agreement (PPA) with Southwestern Public Service Company (SPS). As a result, LPP was obligated to pay delay liquidated damages to SPS. ArcLight fully funded the payments with an additional equity contribution. The liquidated damage payments were part of a settlement agreement between LPP and SPS that conclusively resolved prior disagreements. Both SPS and LPP are currently fulfilling their respective payment and energy delivery obligations under the PPA.

Major performance testing has taken place, and the Hobbs facility is approaching substantial completion. The facility's tested capacity and heat rate exceed PPA requirements, which were used as the basis for the sponsor's original financial projections. Minor operating issues involving the duct burners have been addressed. Outstanding construction costs are relatively minor and primarily consist of punch list items and other administrative work. The sponsor, which had funded previous cost overruns, has indicated it will fund the remaining completion costs. Consequently, Fitch expects substantial completion will occur prior to Dec. 30, 2008, when bondholders could exercise their option to draw under the construction LOC.

LPP is a special-purpose company formed solely to own and develop the Hobbs project, which consists of a 604-MW natural gas fired, combined-cycle electric generating facility located in New Mexico. Hobbs sells energy and capacity under a 25-year PPA with SPS, which purchases capacity at a fixed price and has full dispatch rights over the facility. Hobbs is reimbursed for nonfuel variable operating costs through a separate fixed-price energy payment. The PPA is structured as a tolling agreement, and SPS is responsible for providing natural gas fuel. SPS (IDR of 'BBB' with a Stable Outlook) is a fully integrated, investor-owned electric utility serving New Mexico and parts of Texas.

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