Fitch Expects to Rate Astoria Energy 'BBB-'.

CHICAGO -- Fitch Ratings expects to assign a rating of 'BBB-' to Astoria Power Project Pass-Through Trust's (the Trust) $515 million series A certificates due 2016. Additionally, the Trust expects to issue $210 million series B certificates and $75 million series C certificates due 2021, which are not now rated by Fitch. Both the series B and series C certificates will be subordinate to the series A certificates in priority. The purpose of the proposed transaction is to repackage the bank facilities that currently provide funding for the project into pass-through certificates.

Astoria Energy LLC (Astoria) was formed to develop, construct, own, and operate a 1,000-MW gas-fired power plant in the Astoria section of Queens, N.Y. The facility will provide electric generating capacity for the New York City market (Zone J), which is one of the most capacity-constrained markets in the country. The facility is being developed in two phases of 500MW each. Fitch's rating will apply to a portion of the facilities in place for the financing and the related and corresponding pass-through certificates of the initial installation of 500 MW. Development of the second phase, which will be separately financed, is not yet underway.

The expected rating reflects Astoria's projected financial performance, asset quality, and financing arrangements. Financial performance will be driven by the receipt of contractual revenues under the PPA with Consolidated Edison Co. of New York, Inc. (Con Ed, rated 'A+' by Fitch). These revenues will be indexed to local market prices and will also be a function of facility availability. Under the sponsor base case, projected debt-service coverage ratios (DSCRs) average 2.41 times (x).

The series A certificates provide for scheduled principal amortization, which, lacking prepayments, would leave a significant balloon payment at final maturity. Fitch views the level of refinancing risk associated with this balloon as commensurate with the expected rating level. Our analysis of required prepayments of principal under several stress scenarios indicates a low likelihood that any outstanding balance on the first lien loan or the series A certificates would exist at final maturity. Only under the most severe scenarios would any balloon payment be due.

Completion risk is considered to be low, as technology is conventional and progress on the construction schedule is well underway. In addition, the liquidated damages provisions under the engineering, procurement, and construction (EPC) contract adequately offset potential losses of future revenues and are guaranteed by both the Shaw Group and SNC Lavalin.

Primary credit strengths include:

--Proven technology provided by reputable suppliers;

--Below-market PPA matching the term of the series A certificates with a strong counterparty;

--Position within the New York City market;

--Prepayment mechanism that both allows for lower scheduled amortization payments and mitigates refinancing risk;

--Construction is well underway and slightly ahead of schedule.

Primary credit concerns include:

--No formal sponsor support to fund construction cost overruns;

--In addition to the usual delay issues, labor unrest could postpone completion;

--Force majeure risk under the PPA.

In the sponsor's base case, coverages begin at 2.50x, dip to a low of 2.15x in 2008, and average 2.46x for the remainder of the life of the debt.

Several stress scenarios were considered to assess the impact of market and operational factors:

--Floor Case: This scenario assumes the minimum in PPA revenues, and no additional revenue sources. Coverages are between 1.02x and 1.13x, and result in a balloon payment of $109 million at maturity.

--Fitch Stress Case: This scenario incorporates the market consultant's 'low price' scenario, and takes a conservative view on revenues that can be earned outside of the PPA. Coverages begin at 1.74x, dip to a low of 1.54x in 2008, and average 1.73x for the remainder of the life of the debt.

--Price Stress in 2008: This scenario incorporates adverse fuel price conditions -- high natural gas prices concurrent with low fuel oil prices -- for Astoria in 2008. As compared with the Fitch stress case, coverages in 2008 drop approximately 0.13x.

--Combination Stress: This stress illustrates the resiliency of Astoria to any one or a combination of operational difficulties. On average, coverages are 0.30x less than the Fitch stress case.

Fitch has published a presale report with a detailed discussion of the transaction and rating rationale. The presale report 'Astoria Energy LLC,' is available on the Fitch Ratings web site at www.fitchratings.com under 'Project Finance' and 'Corporate Finance,' or by contacting the ratings desk at [phone].