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Fitch downgrades massive solar farm on Southern California Edison contract risk

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Berkshire Hathaway Energy's Solar Star complex in Kern County, Calif.

Source: SunPower Corp.

Two days after Fitch Ratings hit Edison International and its utility subsidiary Southern California Edison Co. with a double-notch downgrade over wildfire-related liabilities, it placed three of the world's largest renewable energy projects that sell power exclusively to the utility on "rating watch negative" and downgraded one of them.

The agency cut its rating March 13 on roughly $1.33 billion in senior secured notes underpinning Berkshire Hathaway Energy's sprawling Solar Star complex in Kern County, Calif., to BBB- from BBB+. Southern California Edison has 20-year power purchase agreements with two adjacent Solar Star systems: the 310-MW Solar Star (Antelope Valley Solar Project I) and the 275-MW Solar Star (Antelope Valley Solar Project II), according to S&P Global Market Intelligence data.

Berkshire Hathaway Energy is a subsidiary of Berkshire Hathaway Inc., led by billionaire business magnate Warren Buffett.

"The rating is constrained by the credit quality of [Southern California Edison]," Fitch analysts wrote in a note to clients, adding that the project's long-term financial situation is otherwise buoyed by "stabilized operational performance, modest leverage and a robust debt service coverage ratio profile."

The actions came the same day fire officials in Ventura County, Calif., confirmed the utility's power lines sparked one of California's largest-ever wildfires in December 2017, which the utility had already acknowledged played a role.

Fitch placed its rating for the nonguaranteed project debt of a Caithness Equities Corp. subsidiary on negative watch, related to its three-phase Caithness Shepherds Flat Wind Farm in central Oregon. Southern California Edison holds long-term contracts with the 265-MW Shepherds Flat North (North Hurlburt), 290-MW Shepherds Flat Central (South Hurlburt) and 290-MW Shepherds Flat South (Horseshoe Bend Wind) projects. The rating agency affirmed its AAA rating on the project's guaranteed debt, supported by a $1.3 billion loan guarantee from the U.S. Department of Energy.

Caithness owns the project jointly with General Electric Co., Sumitomo Corp. and Alphabet Inc.

Fitch also placed its BBB- rating on $579.9 million in senior secured pass-through certificates associated with the multi-phase 947-MW Alta Wind Farm in Kern County, Calif. Clearway Energy Inc. owns a series of Alta Wind projects that sell power to Southern California Edison.

Wildfire liability risks in California ultimately put the utility, as well as Sempra Energy's San Diego Gas & Electric Co., at risk of following PG&E Corp. and its subsidiary Pacific Gas and Electric Co. into Chapter 11 bankruptcy protection, S&P Global Ratings cautioned in February.