S&P assigns ratings to European wind power financing

LONDON, May 27

The financing of wind power projects through the capital markets looks set to grow significantly, said Standard & Poor's Ratings Services today, following publication of its first rating on a European wind power financing.

"Increasing funding requirements, bond investors' greater familiarity with the credit risks, and the commitment to reduce emissions of greenhouse gasses to levels agreed under the Kyoto protocols and formalized in the EU Renewables Directive are important drivers behind government efforts to support the wind power sector," said Jan Willem Plantagie, credit analyst and head of European project finance at Standard & Poor's. Over the past 10 years, the European wind power sector has been one of the fastest-growing energy sectors globally in terms of installed capacity. The sector has so far been funded predominantly by bank financing and by sponsors financing the wind farms on their balance sheet. Yesterday, however, Standard & Poor's assigned its first preliminary public investment-grade rating in Europe to a note issue that will finance various wind projects, mainly in Germany and Portugal.

This could spur further rated issuance of debt for wind power projects. A preliminary 'BBB-' senior secured issue rating was assigned to the proposed EUR100 million of notes, due in 2024, to be issued by Max Two Ltd. (issuer or MTL). The outlook is stable. MTL is a special purpose vehicle that will issue the notes and will subsequently onlend the proceeds to finance and refinance wind farms in Germany and Portugal (see the media release "Max Two Ltd. Proposed EUR100 Mil. Notes Wind Power Funding Assigned Prelim 'BBB-' Rtg; Otlk Stbl" published on May 26, 2004, on RatingsDirect, Standard & Poor's Web-based credit analysis system).

The publication of the preliminary rating follows significant research undertaken by Standard & Poor's (see the list of published articles below), as well as the publication of Standard & Poor's first-ever investment-grade rating of a wind power financing on June 23, 2003, for FPL Energy American Wind LLC, and its first-ever public speculative-grade rating for FPL Energy Wind Funding LLC on Dec. 5, 2003 (for further details, see the media releases "FPL Energy American Wind LLC $370 Million Bonds Rated 'BBB-'" and "FPL Energy Wind Funding's $125 Million Bonds Rated 'BB-'", published on these dates on RatingsDirect). Regarding the MTL transaction, Standard & Poor's considers regulatory support for wind power to be strong. "Proposed amendments to the Renewable Energy Sources Act in Germany, which are currently being discussed between the government and the Bundesrat (German upper chamber of parliament), are not expected to affect wind projects already in operation, as any change in the regime under which these operate would severely affect investors' confidence in the German wind sector," said Mr. Plantagie. The Portuguese wind sector is not as developed as in Germany. The current regulations in Portugal are supportive to the transaction, but the regulatory regime is expected to evolve over time and therefore bears a higher level of uncertainty compared with the regime in Germany.

MTL will rely on the performance of each of the individual wind farms to generate sufficient cash flow for debt service. The analytical approach assumes a weak link in that, in the absence of any significant cross collateralization, the lowest rating on the separate underlying wind farms determines the rating on the notes. Standard & Poor's has reviewed all the individual projects in operation and assessed them to be of investment-grade quality. We will separately assess the forthcoming Portuguese projects, but expect those to achieve an investment-grade assessment as well. The following reports on European wind power financing were recently published by Standard & Poor's on RatingsDirect: -- Presale: Max Two Ltd. (Breeze One Transaction) (May 27, 2004) -- Winds of Change Blow Through the U.K. Wind Power Sector (May 21, 2004) -- Sustainability and Creditworthiness of European and U.S. Wind Power (Dec. 12, 2003); -- Are European Wind Power Projects on Their Way to Investment Grade? (Nov. 11, 2003) -- Wind Power Picking Up Force in Spain, but Remuneration is a Concern (Nov. 11, 2003) -- U.K. Blows Hot and Cold Over Wind Power (Nov. 11, 2003) -- Denmark Remains a leading Force in European Wind Power despite New Tariff Regime (Nov. 11, 2003); and --Government Support Breathes Winds of Change Through German Wind Power Industry (Nov. 11, 2003).

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