New York, November 06, 2012 -- Moody's Investors Service has assigned a Ba2 rating to GWF Energy Holdings LLC's (Holdings) $202.9 million senior secured credit facility. The facility consists of an approximate $173.5 term loan B (HoldCo loan) maturing in December 2018, a $24.4 million letter of credit facility, and a $5 million revolving credit facility. The revolver and the LC facility each mature in December 2017. The rating outlook is stable. The HoldCo loan will be secured by 100% of the equity interests in Holdings and, to the extent not pledged to secure the OpCo debt referred to below, the equity interests in Holdings' subsidiaries.

RATINGS RATIONALE

Proceeds from the term loan along with approximately $171 million in equity from the sponsor, Highstar Capital IV L.P., will principally be used to acquire a portfolio of three generating assets totaling 530 MW of generating capacity from affiliates of Harbert Power, LLC. The remaining use of proceeds will cash fund an $8.5 million, six-month debt service reserve and pay transaction fees and expenses.

According to Moody's analyst, Charles Berckmann, "The assigned Ba2 rating reflects highly predictable cash flows from well-structured tolling arrangements with an investment grade off-taker with virtually no fuel-supply risk and a pass-through of greenhouse gas costs balanced against substantial leverage and ongoing structural subordination from a material level of amortizing operating company debt." Specifically, approximately $294.5 million of existing project level, amortizing debt (OpCo debt) will be assumed at acquisition close and will remain ahead of Holdings debt through the life of the term loan. Total consolidated debt at financial close is expected to be $468 million.

The term loan financing benefits from the existence of three discrete tolling agreements between Pacific Gas and Electric Company (PG&E; A3 stable) and each of the three generating assets, the Tracy facility, a converted 334 megawatt (MW) natural gas-fired combined cycle power plant, and two 98 MW peaking facilities, the Henrietta and Hanford plants. As indicated by Berckmann, "with over 80% of cash flows derived from the recently converted Tracy facility, plant concentration risk has increased. This risk is mitigated by the robust historical performance of the plants, the fact that the original design incorporated combined cycle capability for the Tracy facility; and the existence of a modest $5 million liquidity reserve which is available for repairs, if needed, during the first year of operations". Berckmann further notes that modest cash flows from Hanford and Henrietta could help support debt service through a modest outage at Tracy. The Ba2 rating also reflects a portfolio that is resilient to various downside scenarios with key consolidated credit metrics that generally score in the Ba range given the preponderance of amortizing debt in the consolidated capital structure.

Notwithstanding these credit strengths, the Ba2 rating recognizes the highly leveraged balance sheet at Holdings following acquisition close, the degree of structural subordination between the Holdings term loan and the OpCo debt (predicated on a 1.2x restricted payments test), and the expected refinancing risk that will arise as required amortization payments are back-end loaded.

The term loan benefits from typical project finance features such as a cashflow waterfall of accounts administered by a collateral agent, an independent director, separateness covenants, no asset sale provisions, limited additional indebtedness, and a cash funded six month debt service reserve. In addition to the minimum 1% required amortization typically seen in most Term Loan B financings, the financing documents required that the greater of 75% of the annual excess cash flow and an amount necessary to achieve a targeted debt balance be applied to Holdings principal repayment. The Tracy, Henrietta, and Hanford plants along with their associated contracts comprise the primary components of the OpCo collateral package, with the Holdings debt being secured by a first security interest in the stock of Holdings and, to the extent not pledged to secure the OpCo debt, the stock of Holdings' subsidiaries. In our view, refinancing risk is largely mitigated and recovery prospects are largely enhanced by the amortizing nature of the OpCo debt fortified by the contractual nature of the cash flows which extends four year beyond the 2018 maturity of the HoldCo term loan maturity.

The generating facilities consist of one 334 MW, GE 7EA combined cycle plant (the Tracy facility) and two 98 MW, GE LM 6000 peaking facilities (the Hanford and Henrietta facilities) . The assets are located in the San Joaquin Valley region in California. All of the assets have at least nine years of operating history and will be run by the existing operational staff pursuant to long-term operations and maintenance agreements.

The stable rating outlook reflects reliable and predictable cash flows from PG&E and our expectations of strong operating performance of the assets.

The rating is unlikely to be revised upward in the near-term. Substantial reduction in either the OpCo or HoldCo loan that results in noticeable improvement in credit metrics could lead to upward rating pressure.

The rating could face downward pressure should the combined cycle plant face operational difficulty resulting in trapping cash at the OpCo level or should the offtaker's rating experience a multi-notch downgrade.

GWF Energy Holdings LLC (Holdings) is a holding company created by Highstar for the purposes of issuing debt to acquire the portfolio. The assets are held in Highstar's Fund IV, an approximately $2 billion fund with a focus on mid-stream and power sectors. The fund also owns the Star West Generation portfolio rated Ba3 by Moody's.

The principal methodology used in this rating was Power Generation Projects published in December 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Charles Berckmann Analyst Project Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653A.J. Sabatelle Senior Vice President Project Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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