NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings on FPL Energy National Wind, LLC's (Opco) and FPL Energy National Wind Portfolio, LLC's (Holdco) senior secured notes and revised the Outlook on Holdco as follows:

--Opco $365 million senior secured indebtedness due 2024 at 'BB'; Outlook Negative;

--Holdco $100 million senior secured indebtedness due 2019 at 'B-', Outlook to Negative from Stable.

The ratings are anchored by diverse wind regimes generating revenues under fixed-price long-term power purchase agreements (PPA). Historical wind volatility combined with an increased operating cost profile have resulted in projections below initial cash flow estimates. However, recent performance remains relatively steady at the current rating levels. The Negative Outlook on both the Opco and Holdco debt reflects near term uncertainty regarding the cost to repair structural features at one wind project. The Negative Outlooks are also tied to the project's ability to meet revised generation forecasts, especially when considering near term repairs and turbine downtime.

KEY RATING DRIVERS

Fully Contracted Revenues - Revenue Risk- Price: Midrange

Revenues are derived under fixed-price long-term contracts for a portfolio of eight wind farm projects totalling 389.6 megawatts (MW). The projects no longer earn revenues from production tax credits (PTCs) under the NextEra Capital Holdings agreement as of February 2014. The credit quality of the offtakers does not actively constrain the current ratings.

Revised Production Estimates - Revenue Risk- Volume: Weaker

Actual wind resource since inception has been roughly 8% below the original P50 estimate with below P90 performance in 2012-2013. The Project benefits from geographic diversification but any portfolio effect has not fully mitigated generation losses from reduced wind speeds overall. Revised projections exclude one divested portfolio project and utilize a P50 forecast based on actual performance which is 6-7% below the original P50.

Stabilized Operating Profile - Operating Risk: Midrange

Operating and maintenance (O&M) expenses have persisted well above expectations with an average increase over the original base case of 45% through 2014. Fitch's projections utilize the increased actual O&M cost in the base case with additional stress applied in the rating case for the later years. Positively, the Project has historically maintained high availability with an average of 94.8% portfolio-wide since 2005.

Debt Structure - Debt Structure: Midrange (Opco)/Weaker (Holdco)

The Opco and Holdco debt benefit from twelve month debt service reserves (DSR) with additional reserves for operations and major maintenance. The distribution trigger at Opco of 1.25x for twelve months or 1.10x for six months helps to ensure timely debt payment at Opco. Under a cash trap scenario, however, the Holdco debt is fully reliant on reserves and would likely face debt repayment risk due to the limited cash at the subordinate level

Limited Financial Cushion - Debt Service: Weaker

Financial performance has been lower than original projections due to reduced energy revenues and higher operating costs than projected. Fitch's rating case adds the maximum estimated structural repair cost for 2015-2017, a 9-12% reduction to output and a 10% increase to O&M expenses and yields an average DSCR of 1.26x with a minimum of 1.05x for the Opco and an average of 0.98x and minimum of 0.94x for the Holdco. Under this scenario, cash flows are sufficient at Opco to complete necessary maintenance with cash and debt service reserves adequate at Holdco to support debt payment for the remaining short tenor.

Limited Public Peers

Fitch rated wind projects generally meet the criteria for investment grade with debt service coverage ratios commensurate with the 1.30x threshold such as Continental Wind (with average rating case DSCR of 1.38x and a minimum of 1.33x) and Caithness Shepherds Flat (with average rating case DSCR of 1.42x and a minimum of 1.33x). Both projects are rated 'BBB-' by Fitch. Opco and Holdco for National Wind are not consistent with investment grade metrics.

RATING SENSITIVITIES

Negative or Positive - Challenges for Necessary Repairs: Extensive outages as a result of a longer-term and higher cost repair than estimated by the Sponsor could result in negative rating action. Conversely, successful repairs at the lower end of estimated costs could resolve the Negative Outlook;

Negative - Liquidity Draw at Holdco: Cash flow trapped at Opco under a sub-1.25x annual DSCR scenario would result in zero cash flow available for Holdco debt. A draw on the debt service reserve at Holdco could signal a change in credit quality from the current level;

Negative or Positive - Long Term Operating Expenses: A material change in long term O&M expenses above Fitch's 10% stress level or below base-case expectations could negatively or positively impact the rating level, respectively.

Negative or Positive - Generation Deviations: A persistent reduction in availability from historical levels or reduced generation following the sale of the Wyoming project may result in Fitch making additional downgrades; However, persistent production near the revised P50 level could result in Fitch taking a positive rating action.

UPDATE

During 2014, necessary repairs were uncovered at an individual project site. The Sponsor is currently working to finalize estimates with regards to the cost and timing of these repairs which could range from roughly $3 to $7.5 million. It is likely that these repairs will span the next several years, resulting in reduced availability at one project site out of the eight project portfolio.

In order to manage tight coverage levels, the Sponsor has historically managed distributions from the Opco and reduced their own distribution in order to send sufficient cash to the HoldCo and make debt service payments. Despite strong coverage in 2014, the additional costs associated with the necessary repairs will likely cause decreased coverage levels during 2015, potentially resulting in cash lock up at the Opco level.

Fitch calculated DSCR for the 2014 calendar year based on nine months of operating data and three months of projected data compared to the March and September debt service payments. The results were an Opco DSCR of 1.74x with Holdco coverage of 1.27x compared to 1.25x and 0.97x respectively for 2013. Increased coverage for 2014 is largely attributed to the positive impact of the debt buy down following the sale of the Wyoming project. Fitch notes that actual DSCR reported by the Sponsor was 1.57x and 1.38x for Opco and Holdco respectively during 2014 based on a year ended Sept. 30.

The current cash balance at Holdco of $1.9 million is sufficient to meet debt service through March 2016. Additionally, the Sponsor intends to use funds from the March 2015 debt service payment at Opco to prefund the debt service at Holdco through 2016. Following the September 2016 debt service payment, it is anticipated that the structural repairs will be complete and that cash flows should revert back to projections. This should limit the risk of Holdco default. Further, the balance at Holdco following the September 2016 payment will be low ($4.1 million) with only two years remaining on the debt tenor.

Fitch has assessed the impact of both a $2.8 million and $7.4 million solution under the base and rating case, respectively. Under the higher cost scenario of $7.4 million, Fitch has spread the maintenance expenses over a three-year period, resulting in near breakeven coverage for 2015-2017. For Holdco, consolidated DSCRs are below 1.0x coverage for the 2015-2017 period, however, cash on hand and debt service reserves are adequate to meet debt service payments. Coverage following the 2015-2017 period is indicative of the current rating level at Opco and Fitch expects that the Sponsor will manage coverage at both Opco and Holdco during the maintenance period based on demonstrated past performance.

Rolling 12-month availability for the period ended Sept. 30, 2014 has declined slightly to 92% due largely to major component failures and repairs at several sites and a plane crash at the South Dakota site. Inclement weather lead to increased downtime following generator failures at a site and resulted in near 80% availability through September 2014. Positively, annual wind production at the projects showed modest improvement compared to 2013 at 5% below the revised P50 and 4% above the revised P90. The prior Negative Outlook at Opco was based on the uncertainty of wind performance without Wyoming as a contributor to the portfolio given its relative stability compared to original project forecasts. 2014 performance helps to illustrate that the impact of removing Wyoming on overall production has been marginal.

The Opco is a portfolio of eight operating wind farms with an aggregate capacity of approximately 389.6 MW (previously 533.5 MW including the 144 MW Wyoming project). Each project company is wholly owned by the Opco and is otherwise unencumbered with project-level indebtedness. All of the output of each wind farm is committed under long term power purchase agreements with counterparties that are unaffiliated with the Opco.

Under the agreements, the Opco generally receives a fixed-energy price for all energy produced by the wind farm, and the counterparty generally pays all costs associated with transmission and scheduling. Distributions from the Opco are the Holdco's sole source of revenues. The HoldCo is an indirect, wholly owned subsidiary of NextEra Energy Capital Holdings, Inc. 'NextEra' (rated 'A-' with a Stable Outlook by Fitch).

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);

--'Rating Criteria for Onshore Wind Farm Projects' (April 11, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Onshore Wind Farm Projects

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=705018

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=940256

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