TA Placed on Watch-Negative by S&P

Standard & Poor’s has announced:

  • •Calgary, Alta.-based TransAlta Corp. has announced that it entered into an agreement with Brookfield Renewable Partners L.P. with respect to the partial sale of TransAlta’s Alberta hydro assets.
  • •As part of this transaction, TransAlta will issue C$350 million in debentures to Brookfield over the coming weeks, mainly to fund future shareholder returns and subsequently issue C$400 million in preferred stock in October 2020 to repay debt maturing in November 2020. Brookfield will also increase its equity investment in TransAlta to 9%. The debentures and preferred shares are expected to convert to a partial interest in TransAlta’s hydro assets in 2025.
  • •S&P Global Ratings placed its ‘BBB-‘ issuer credit rating on TransAlta and its issue-level ratings on the company’s debt on CreditWatch with negative implications.
  • •TransAlta’s leverage remains elevated for the rating, and the CreditWatch placement reflects a greater than 1-in-2 chance of a downgrade if we are not convinced that the company can improve its funds from operations (FFO) to debt to about 22% or debt to EBITDA would not decrease below 3.5x by 2020.
  • •We expect to resolve the CreditWatch over the next 90 days after meeting with company management to evaluate its plans to reduce leverage over the next two years and to manage execution risk while increasing its natural gas and renewables generation portfolio.

The negative CreditWatch placement follows TransAlta’s announcement that it entered into an agreement with Brookfield to sell to Brookfield a partial interest in its Alberta based hydro assets.

DBRS takes a milder view, as discussed yesterday.

Affected issues are TA.PR.D, TA.PR.E, TA.PR.F, TA.PR.H and TA.PR.J.

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