BBB- rating for OrCal Geothermal affirmed by Fitch

Ormat's Galena 2 plant, Nevada, not related to story (source: Ormat)

Alexander Richter 25 Mar 2010

In a release by the company, “Fitch Ratings has affirmed the ‘BBB-‘ rating for OrCal Geothermal Inc.’s (OrCal) $165 million senior secured notes due 2020. OrCal has resolved previous shortfalls in project capacity and increased output following a series of capital improvements, and Fitch has no reason to believe OrCal’s financial performance will differ significantly from original projections. The Rating Outlook remains Stable.

Overall operations at the Heber geothermal complex improved to net production levels of 85.1 megawatts (MWs) in 2009, up from projected production of 81.8 MW for the year. The increased production is the result of upgrades to the Heber South and Heber 2 projects in 2008, following prior upgrades to the Heber 1 project in 2007. Heber South, OrCal’s newest 14 net MW geothermal plant, initially underperformed when it came on-line in May 2008, producing at half capacity. The drilling of a new well in 2009 resolved Heber South’s production issues and has consequently permitted optimization of the entire Heber field. The 2009 capacity factor of 92% exceeded the originally projected capacity factor of 88%, whereas the projects’ capacity factor lagged projections three years ago. OrCal performed upgrades on Heber 2, a 32 net MW plant put into operation in 1993, also went through major upgrades to replace original equipment in 2008 and Heber 1, OrCal’s largest plant at 45 net MWs, went through its own discretionary upgrades when it was overhauled in 2007.

The combination of upgrades caused additional expenditures approaching $11 million annually in 2009 and 2008. None of these costs were anticipated at the time of the debt issue in 2005. OrCal paid for the additional costs out of cash flow and the proceeds of a subordinated loan from its parent, Ormat Technologies Inc. DSCR as calculated by Fitch fell to 1.35 times (x) in 2008 versus originally projected coverage of 1.51x. However, the beneficial effect of the capital improvements lifted coverages to 1.77x in 2009, and are projected by the sponsor to exceed 2.0x in 2010 and beyond. While coverages did not dip below the 1.25x test required for distributions to the sponsor, the company retained significant cash flow in the project for the upgrades, constituting a de facto equity investment by the parent.

Source: Earthtimes