DALLAS — Standard & Poor's downgraded bonds issued to finance a trash-to-energy plant to a speculative grade BB-plus after the Glendale, Ariz., facility drew on debt-service reserves to make an April 1 payment.
Bonds used to build the $110 million plant were issued through the Industrial Development Authority of Phoenix in 2013. The plant was dedicated in February 2014 but operator Vieste Energy said it discovered that 90% of the type of waste supplied by the city of Glendale could not be used to produce energy.
The April 1 downgrade follows a five-notch downgrade in 2014 from an initial A-plus rating. The rating remains on S&P's CreditWatch for further downgrade.
"The downgrade reflects the draw on the debt service reserve fund to make the April 1, 2015 payment," said Standard & Poor's credit analyst James Breeding.
Bond proceeds were loaned to Vieste Energy to build and equip for the materials recovery facility in Glendale. Although the city supplies the trash for the facility, it bears no responsibility for the debt, officials said.
Bondholders authorized an additional $8 million in debt in January to retrofit the plant so that it could process the type of debris supplied by Glendale.
"Vieste has determined that the best course of action would be to retrofit the facility and upsize certain equipment to accommodate the yard waste," Breeding noted in the previous downgrade.
Glendale provides Vieste a land lease agreement that is $100,000 per year for a 30-year term, officials said. Vieste, in turn, agreed to pay Glendale an annual recycling management fee of $476,000. The plant is designed to produce up to 350 tons of gas from municipal solid waste every day, providing enough energy to generate 15 megawatts of electricity.
The contract with the city does not specify a buyer for the power produced by the waste. A fee for solid waste collections is charged on the monthly utility bill, though revenues from those funds are not officially pledged to these bonds, Breeding noted.
