Printer Friendly

Midland Funding I, II Debt Upgraded to 'BB+/B+' by Fitch

NEW YORK, Nov. 22 /PRNewswire/ -- Midland Funding Corp. I's outstanding $456 million senior secured lease obligation bonds, series C, due 2002 have been upgraded to 'BB+' from 'BB' by Fitch Investors Service. Additionally, Midland Funding II's $367 million subordinated secured lease obligation bonds, series A, due 2005 and series B, due 2006 are upgraded to 'B+' from 'B'. Midland Funding Corp. I and II are special purpose corporations formed as financing vehicles for the 1990 sale/leaseback of the 1,370 megawatt Midland power plant in Michigan by Midland Cogeneration Venture L.P. (MCV). MCV has a 35-year power purchase agreement with Consumers Power Co., which provides more than 90% of revenues. Fitch rates Consumers Power's debt 'BBB+'.

The upgrades reflect Fitch's current assessment of MCV's ability to make timely payments of interest and principal on the debt, which is supported by several factors. Critical to the ratings are substantial debt and working capital reserves (currently at about $200 million) that are available in the event of periods of poor operating performance. Stress test analyses demonstrate that the reserves protect bondholder interests. In most cases, the reserves provide a comfortable financial cushion even if rent coverage ratios were to drop below 1.0 times (x) for an extended period. Under relatively rigorous stress cases, the senior debt should be fully amortized in 2002 before depletion of the rent reserves. Assuming MCV's financial performance continues near current levels, the potential for an upgrade of the senior debt into the investment grade category is possible as the amount of outstanding debt shrinks relative to available cash reserves. However, the timing of any future rating action remains uncertain.

Other prominent positive factors include reduced regulatory and long-term fuel risks. On Nov. 15, 1996 the Michigan Public Service Commission issued a long awaited rate order resolving cost recovery of the final 325 megawatts of electricity purchased by Consumers Power from MCV. The order is favorable for Consumers Power and finally settles the last of several meaningful regulatory and legal uncertainties affecting MCV. MCV is also better positioned to meet ongoing minimum thermal percentage and operating efficiency standards for maintenance of its qualifying facility certification under Public Utility Regulatory Policies Act of 1978(PURPA). In July 1996, MCV initiated steam deliveries to Dow Corning Corp., increasing the Midland plant's overall thermal energy output. In addition, Midland has consistently operated above minimum efficiency standards and should continue to do so. Finally, fuel risk has been lowered as MCV has entered into new natural gas supply contracts during the past several years at prices well below estimates used for initial economic projections. In particular, the long-term gas cost savings will strengthen credit ratios for the subordinated debt, which does not fully mature until 2006.

Credit risks include weak credit protection measures, with rent coverage barely exceeding 1.0x; long-term economic exposure arising from the mismatch between cost escalations under natural gas supply contracts and revenue generated under the purchase power agreement's coal-based, variable energy escalator; a history of recurring cracking problems with gas turbine generators which, if not permanently corrected, could result in intermittent reductions in plant availability; and the nonquantifiable industrywide competitive risk resulting from electric industry deregulation.

SOURCE Fitch Investors Service, Inc.
 -0- 11/22/96


/CONTACT: Ralph Pellecchia, 212-908-0586, or Ellen Lapson, 212-908-0504, both of Fitch Investors Service, Inc./

CO: Midland Funding Corp.; Consumers Power Co. ST: Michigan IN: OIL UTI SU: RTG

MW -- NYF040 -- 5822 11/22/96 12:02 EST http://www.prnewswire.com
COPYRIGHT 1996 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1996 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Nov 22, 1996
Words:582
Previous Article:Kids Nationwide Participate In Nickelodeon's Third Annual Big Help Day; National Day of Recognition of Kids' Volunteer Efforts Saturday November 23
Next Article:Melitta Continues Its 'Coffee World Expansion' in Florida; First Coffee World to Open in Orlando

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters