Fitch IBCA Expects To Rate AES-PR's $736M Proj Debt `BBB'.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 8, 2000

Fitch IBCA expects to rate AES Puerto Rico L.P.'s (AES-PR) $735.5 million facility debt `BBB'. The facility debt is comprised of $155 million tax- exempt and $40 million taxable Puerto Rico Industrial, Tourism, Educational, Medical, and Environmental Pollution Control Facilities Financing Authority's (AFICA) cogeneration facility revenue bonds series A and B, respectively, and $540.5 million in secured bank loans. The formal rating is subject to receipt of final documentation.

Proceeds from the AFICA bonds, bank loans, and a 10% equity investment from AES-PR's parent company, The AES Corp. (AES), will be used to construct a 454 megawatt coal-fired circulating fluidized bed (CFB) combustion power plant, which is certified as a Qualifying Facility (QF). Facility debt is secured by a senior lien on project revenues and assets. AFICA bonds and bank loans, which are on parity, will be non-recourse to AES, whose senior unsecured notes and corporate revolving bank loan are rated `BB+' by Fitch IBCA. The AFICA bonds are expected to price on May 24 with Goldman Sachs as manager.

The project is a coal-fired electric cogeneration facility located in Guayama, Puerto Rico. This project is part of PREPA's long-range plan to further diversify its fuel source away from oil and to improve system reliability. The project's fuel supply is expected to come from Colombia. Operated by AES-PR, the facility will deliver electric energy and capacity to Puerto Rico Electric Power Authority (PREPA) and steam to Phillips Puerto Rico Core, Inc. under long term contracts. PREPA is a municipal electric system and Puerto Rico's main source of electricity. AES-PR and PREPA have entered into a 25-year power purchase agreement (PPA). Under the terms of the PPA, PREPA will pay a fixed demand charge (consisting of a fixed component and a financing cost component that may be fixed by PREPA on or after the closing) which may be reduced if availability falls below 90%, based on a 12 month rolling average. The plant is also fully dispatchable by PREPA with all coal costs directly passed through to PREPA. AES-PR has contracted Duke/Fluor Daniel Caribbean S.P. as the engineering, procurement, and construction contractor. Construction began on Nov. 16, 1999, and the plant is expected to be completed on June 16, 2002.

The `BBB' rating reflects: a strong long term power purchase agreement, with a solid investment grade off- taker, that extends beyond the life of the debt; very high quality project participants; AES' plant operating capabilities; and the expected timely completion of the project. Proven generation technology that is extremely economical should provide the project with a favorable dispatch position. Due to the project's very low energy costs (approximately 65% lower than PREPA's oil fired generation costs in 1999 -- its predominant fuel source) the plant is expected to be dispatched as a baseload facility. The project has obtained its clean air permits, and will be installing the combination of a selective non-catalytic reduction system, two circulating dry scrubbers, and an electrostatic precipitator. Additional strengths include, PREPA's sound financial position, the project's good fit with PREPA's generation and fuel diversification plan, and the full pass through of fuel costs to PREPA. Being virtually the sole electric provider on the island of Puerto Rico, PREPA enjoys a favorable customer base, strong demand growth, and no electric retail and wholesale competition. AES-PR's average and minimum debt service coverage are projected to be strong at 1.90 times (x) and 1.63x, respectively, and after multiple stress scenario's remained solid with average coverage above 1.4x.

The rating also considers potential credit risks including: the long term nature of the AFICA bonds and a low equity contribution compared to similar projects; significant reliance on floating rate debt (comprising 25% of capitalization); the project's responsibility to deal with ash disposal costs; and reliance on a single facility. Furthermore, several potential, but unlikely, buy-out options available to PREPA could result in a cash short fall between the purchase price and outstanding project debt. Under certain circumstances, PREPA may purchase the AES-PR plant if: beginning in year 15 an independent consultant determines that continued dispatch of the plant is no longer economic for the remaining life of the PPA, or the tax and environmental cost tracking account balance exceeds $47 million, or AES-PR abandons the plant. This concern is mostly mitigated by the project's favorable economics, and the unlikely event that the relative fuel prices of oil and liquid natural gas, compared to coal, will significantly decrease (65% and 38%, respectively) making the coal project uneconomical. Additional comfort is provided by the projects solid cash flows which under multiple stress scenarios show adequate cash available after debt service payments to fund a shortfall account if needed.

AES-PR has added several enhancements to the financing documents providing additional support for a `BBB' rating. Enhancements include, increasing the AFICA bond debt service reserve fund requirement to 1/2 maximum annual debt service in year 20 from maximum annual interest, providing a covenant to maintain the tax and environmental tracking account below $23.5 million, and funding a second short- fall account after year 15 of the PPA, equal to the amount outstanding on the working capital LOC (up to $25 million), providing additional funds in the event of a buy-out short- fall in years 20 through 25 of the PPA.