Fitch Expects to Rate Topaz Solar Farms LLC Senior Secured Notes 'BBB-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate the Series A senior secured notes issued by Topaz Solar Farms LLC (Topaz), as follows, subject to receipt of final documentation:

--$700 million Series A senior secured notes rated 'BBB-'.

The Rating Outlook is Stable. A full rating report is to follow.

Key Rating Drivers

--Strong Revenue Contract Secures Cash Flows: The revenues of Topaz are anchored by a utility off-taker, Pacific Gas & Electric Company (PGE; rated 'BBB+' with a Stable Outlook by Fitch), under a long-term, fixed-price power purchase agreement (PPA) that provides a six-month cushion beyond the expected debt maturity.

--Limited Completion Risk: Fitch views the combination of an experienced contractor, First Solar Inc. (First Solar), a strong construction contract, strong equity contribution agreement, and robust liquidity resources as substantial mitigants to completion risk. If, however, First Solar is unable to meet its obligations to Topaz, Fitch believes there are sufficient alternate suppliers to permit Topaz to reach completion at a cost and schedule that would not significantly erode cash flows.

--Operating Reserve and Contingency Support Cost Structure: Topaz features a six-month operating reserve funded at the commercial operations date (COD) , and an additional operating contingency reserve that builds in cost cushion through debt maturity. In the base case, Fitch evaluated operating costs as provided under the fixed-price all-inclusive operating contract with First Solar, while the Fitch rating case considers a higher cost structure if First Solar is replaced as operator.

--Debt Service Coverage Profile Consistent with an Investment Grade Rating: The amortization profile for total expected debt at Topaz of $1.265 billion, including the Series A senior secured notes and additional permitted pari passu debt of $565 million to be issued, is slightly front-loaded, providing rising debt service coverage ratios (DSCR) under the Fitch rating case. Rating case DSCRs range from 1.28 times (x) to 1.64x, with average coverage of 1.38x.

--Special Purpose Vehicle Status: Fitch notes that a non-consolidation opinion for Topaz is not expected by financial close. Separateness language in the documents, together with a strong sponsor, suggests that the risk of consolidation in a bankruptcy is limited and consistent with the rating. A change of ownership or financial strength of the sponsor would trigger a rating review and may affect the rating of Topaz.

What Could Trigger A Rating Action

--If the actual solar resource supply is significantly different than forecast;

--Construction issues significantly alter expected output and operating cash flows of the project at completion;

--The off-taker's debt rating, or the sponsor's debt rating, is below the debt rating of Topaz.

Security

Security for the senior secured notes, including Series A and Additional Permitted Debt, and the Letter of Credit (LOC) facility is a first-ranking security interest in all of the assets of the issuer, including equity interests of Topaz, mortgage on the real property of the issuer; all personal property of the issuer, including accounts receivable and project accounts, rights under all project contracts and Equity Contribution Agreements, permits related to the project, all LOCs and other credit support issued in favor of the issuer; all intellectual property of the issuer necessary for construction and operation of the project; and all of the proceeds of the foregoing.

Transaction Summary

Topaz is a proposed 586 megawatt (MW) alternating current, thin-film photovoltaic (PV) facility to be built on 4,100 project-owned acres in San Luis Obispo County, California. Topaz is expected to be one of the largest PV projects yet built worldwide. The project is expected to be constructed and operated by First Solar, and First Solar will supply the PV panels for Topaz under the construction contract. The project has an executed PPA with PGE for a 25-year term beginning at the COD that provides a six-month cushion beyond the expected debt maturity.

Fitch expects that Topaz will be able to reach completion at a cost and schedule that would not significantly erode projected cash flows. Fitch's view is based on MidAmerican Energy Holdings Company's (MidAmerican) strong MidAmerican's strong equity commitment up to the full project costs of $2.442 billion less debt financings and pre-completion revenues. Moreover, the project benefits from robust liquidity resources including construction contingencies, reserves, and retainage. Finally, Fitch finds that there are sufficient alternate contractors and panel suppliers in the solar market who could reasonably replace the current contractor and panel supplier within a six-month period, if required.

Topaz will issue Series A of the senior secured notes at financial close of the transaction, and expects to issue $565 million additional permitted pari passu debt by the first anniversary after the Project's COD. Fitch's rating of Series A includes the expectation of additional permitted debt issue, and therefore rates Series A as if the Topaz capital structure includes a total of $1.265 billion debt by mid-2016.

The sponsor, MidAmerican, rated 'BBB+' with a Stable Outlook by Fitch, is a diversified utility holding company headquartered in Des Moines, Iowa. MidAmerican, that owns several low risk electric utility and natural gas pipeline companies, primarily in the U.S. MidAmerican also owns a growing renewable energy project portfolio representing over 5,500 MWs comprised of wind, geothermal, hydroelectric, solar, and biomass power. MidAmerican acquired the project from the developer, First Solar, on Jan. 31, 2012.

MidAmerican is a consolidated subsidiary of Berkshire Hathaway, Inc. (Berkshire), which is rated 'AA-' with a Stable Outlook by Fitch. Berkshire is diversified holding company with a dominant investment in insurance businesses, on both a primary and reinsurance basis.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (August 16, 2011);

--'Rating Criteria for Solar Power Projects' (February 23, 2011.

Applicable Criteria and Related Research:

Rating Criteria for Solar Power Projects