CPX.PR.A Downgraded by S&P

Standard & Poor’s has announced:

  • •We are lowering our long-term corporate credit and senior unsecured debt ratings on Capital Power Corp. (CPC) and subsidiary Capital Power L.P. to
    ‘BBB-‘ from ‘BBB’.

  • •We are also lowering our global scale preferred stock rating on CPC to ‘BB’ from ‘BB+’, and our Canada scale rating to ‘P-3’ from ‘P-3(High)’.
  • •We base the downgrade on weakness in the Alberta power market, which we forecast will not improve materially in the medium term.
  • •The lower amount of hedging the partnership is undertaking with respect to its Alberta merchant power heightens its significant exposure to lower Alberta forecast prices.
  • •The stable outlook reflects our view that adjusted funds from operations-to-debt will remain below the 20% threshold we associate with the ‘BBB’ rating.

The ratings on CPC and CPLP reflect Standard & Poor’s opinion of the partnership’s strong business risk profile and significant financial risk profile. Providing key support to the ratings is a more measured perspective on growth and a moderately diversified generation portfolio, which consists of a relatively young fleet. Moreover, the partnership recently completed the Quality Wind project under budget, reducing construction risk and demonstrating strong project development capability. We also believe CPLP benefits from a portion of its cash flow from long-term power purchase contracts with predominantly creditworthy counterparties, which add predictability. In our view, offsetting these strengths is a high degree of leverage, notwithstanding the partnership’s efforts to reduce leverage through such things as equity issuance, which exposes it to weakening in power prices, particularly in light of a relatively large open position. We believe this heightens the volatility of cash flow.

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