AZP On Watch Negative by S&P

Standard & Poor’s has announced:

  • •We are placing our ratings on Atlantic Power Corp. (APC) and affiliate Atlantic Power Ltd. Partnership (APLP), including our ‘B’ corporate credit ratings, on CreditWatch with negative implications.
  • •The CreditWatch placement follows the company’s decision to cut distributions for the second time in two years, and the departure of its CEO.
  • •We will conduct a review of the company’s strategic and financial plan over the next several weeks and resolve the CreditWatch over the next 60 to 90 days.

Atlantic Power has lowered its dividend by 70% (C$0.12 annually from C$0.40), a second distribution cut in 18-months, following a 65% reduction in February 2013. The company has also revised its distribution payments to a quarterly schedule from monthly payouts. The company has cited a reevaluation of its medium-term plan, including debt maturities and recontracting risk from 2017 onwards that have caused a change in its payout policy. Atlantic plans to focus on optimization its assets and delevering its balance sheet to improve both its cost of capital and ability to compete for new investments. In addition, the company plans to assess other potential options, including asset sales or the contribution of assets to a joint venture to raise additional capital for growth and/or debt reduction. Our review will also evaluate if the distribution reductions have the potential of weighing negatively on the company’s ability to access the markets competitively as well as its future strategy given management transition.

The company’s announcement of changes, and the effect of these changes on its equity and preferred prices, was discussed on PrefBlog on September 16. S&P’s note did not mention that the previously trumpeted sale process has been cancelled, which I consider significant.

The company has two issues of preferred shares outstanding, AZP.PR.A and AZP.PR.B.

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