Citing the downgrade of El Paso Energy Corp. as part of the reason for its action, Moody’s Investors Service downgraded the senior secured debt of a MidAmerican Energy Holdings Co. subsidiary that owns and operates a 537 MW natural gas-fired combined cycle generation plant located in the Midwest.

Moody’s lowered the senior unsecured debt of Cordova Funding Corp. to “Ba1” from “Baa3”. The ratings agency said that the action reflects the downgrade of the power offtaker, El Paso Energy Corp., and lower than expected plant dispatch, with resulting lower debt service coverage ratios.

“With the overabundance of capacity in the Midwest and the weak price environment, dispatch of the gas-fired plant has been lower than expected,” Moody’s said. Debt service coverages for the project have consequently been lower than anticipated as well. Moody’s expects that a low spark spread situation will continue at least into 2004.

In addition, the credit strength of the off-taker has declined, as indicated by Moody’s downgrade of El Paso Corp., the ratings agency said (see related story).

Under the terms of a 20-year power purchase agreement, the project receives a fixed capacity payment from El Paso Power Services, a subsidiary of El Paso Energy. El Paso Energy guarantees the payment obligation of its subsidiary.

The rating remains on review for possible further downgrade. Moody’s review will focus on the prospects for the plant in the low-dispatch environment, as well as the credit quality of the offtaker.

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