Exelon launches B loan for ExGen Texas power plants to issue dividends

In early September Moody's Investors Service assigned a B1 rating to ExGen Texas Power, LLC's (EGTP) planned $700 million senior secured term loan B due September 2021 and a Ba3 rating to EGTP's planned $20 million revolving credit facility due September 2019.

EGTP owns a portfolio of five electric generating assets in Texas: the 738 MW Wolf Hollow combined-cycle facility in Granbury; the 510 MW Colorado Bend combined cycle facility in Wharton; the 1,265 MW Handley natural gas-fired steam boiler in Ft. Worth; the 808 MW Mountain Creek natural gas-fired boiler in Dallas; and the 156 MW simple cycle facility in La Porte. EGTP is 100% indirectly, wholly owned by Exelon Generation. Exelon Generation is a wholly-owned subsidiary of Exelon.

Proceeds from the term loan financing are expected to fund an approximate $552 million dividend to the owner Exelon Generation Company, to fund related OID, legal and closing costs, and to fund $131.6 million into three reserve accounts for six months of debt service ($21 million); sixteen (declining to twelve) months of major maintenance ($75.6 million) and a $35 million liquidity reserve.

Moody's said the B1 rating reflects:

• the portfolio's significant merchant exposure with approximately 35% of gross margin hedged over the life of the financing;

• financial ratios, including a debt service coverage ratio (DSCR) between 1.5x -- 2.0x and leverage metrics, including a ratio of funds from operations to debt (FFO/Debt) between 7% - 10%;

• and a weak competitive position as 60% of the MWs in the portfolio are over 50 years old with an average portfolio heat rate around 9,000 btu/kwh (weighted-average by net generation).

• high likelihood of refinancing risk at the term of the loan maturity due to a combination of these factors plus Moody's view that the cash sweep mechanism contemplated in the financing will result in modest levels of additional amortization owing to a more conservative view on power price appreciation in Texas' ERCOT market.

Moody's said there are also strengths that balance the above-mentioned weaknesses:

• The continued role of Exelon Generation, the sponsor, as Exelon Generation remains substantially involved in many operational and commercial aspects of the portfolio despite the payment of a $552 million dividend at financial closing of this debt issuance.

• EGTP remains an important set of assets for Exelon Generation and its parent Exelon Corporation and that the Texas market remains a strategically desirable location for Exelon on a long-term basis.