AZP.PR.A & AZP.PR.B Put On Watch-Negative By S&P

Standard & Poor’s has announced:

  • •Power developer Atlantic Power Corp.’s key credit measures have continued to deteriorate. In addition, Atlantic Power has announced that, based on current projections, it may not be able to comply with the interest coverage ratio covenant in its senior revolving credit facility beginning in the third quarter of 2013.
  • •We are placing the ‘BB-‘ corporate credit rating on Atlantic Power Corp. on CreditWatch with negative implications.
  • •We expect to resolve the CreditWatch listing after the potential covenant violation issues are resolved. In the interim, we will also reassess our financial projections for the company given recent developments to ascertain whether near-term forecasted credit ratios remain commensurate with a ‘BB-‘ or lower rating. We expect to complete this review over the next two to three weeks.

To maintain ratings, we would expect average cash flow after debt service (CFADS) to debt and CFADS to interest coverage to be at least 17% and 2.4x, respectively. A downgrade could occur if the company’s CFADS to debt and CFADS to interest coverage drops below the aforementioned levels.

So S&P now rates these issues as P-4(low) [Watch-Negative].

In the company’s 13Q1 Earnings Release of May 8 they say:

Examples of such statements in this press release include, but are not limited, to statements with respect to the following:

compliance with the Company’s senior credit facility and the Company’s ability to obtain requested waivers and/or amendments to the senior credit facility;

but one of the subsequent developments was

Utilized portion of proceeds from the sale of the Florida Projects to fully repay $64 million of outstanding borrowings under the Company’s senior credit facility

The earnings release also noted:

  • • 2013 annual guidance of $250 to $275 million in Project Adjusted EBITDA reaffirmed
  • • 2013 annual Payout Ratio guidance of 65% to 75%, including cash flow from discontinued operations, reaffirmed

The section of concern is:

The Company, as previously indicated, still expects to have approximately $140 to $150 million of net cash available to invest in growth projects by mid-2013 after retaining at least $50 million of unrestricted cash and while preserving $210 to $225 million of access under its revolving credit facility. As more fully described in the Company’s quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2013, the Company has initiated discussions with the lenders under its revolving credit facility to obtain a waiver of, or an amendment to, the revolving credit facility with respect to, among other things, compliance with certain ratios. The closing of the Gregory and Delta-Person asset sales in the third quarter of 2013 are expected to add further to the available net cash balance. Consistent with previous expectations, the Company plans to begin investing this cash in the second half of this year.

The 10Q for 2013Q1 states:

We must meet certain financial covenants under the terms of our senior credit facility, which are generally based on ratios as described in Note 9 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2012. As of May 6, 2013, we were in compliance with these ratios. After further review of our currently forecasted results for the remainder of the year, we anticipate that, it is likely we will not meet the covenant in our senior credit facility requiring that our ratio of Consolidated EBITDA to Consolidated Interest Expense (as described in the senior credit facility) exceeds 2.25, with respect to the quarter-end testing date for one or more of the remaining quarterly periods in the balance of the 2013 fiscal year. We are currently in discussions with our lenders to obtain a waiver of compliance with this ratio for the balance of the fiscal year and/or an amendment to the senior credit facility. We anticipate receiving a waiver for this possible default or an amendment to the applicable ratio, although no assurance can be given that we will be successful in this regard. In addition to securing such waiver and/or amendment, we plan to seek a broader amendment of our senior credit facility to take into account changes in the business development plans at Atlantic Power, which would also take into account the potential for a breach of our Leverage Ratio in early 2014, as more fully described in ‘‘Item 1A. Risk Factors’’, and intend to initiate discussions with our lenders in this regard. In the unlikely event that we’re not successful in obtaining such waiver or amendment, based on our available cash resources, we expect to have the ability to cash collateralize the outstanding letters of credit under the senior credit facility and terminate the senior credit facility prior to any default (which would eliminate such facility as a source of liquidity).

We believe that we will be able to generate sufficient amounts of cash and cash equivalents to maintain our operations and meet obligations as they become due for the next 12 months.

The preferred share issues were confirmed at Pfd-4 by DBRS last August, as reported on 2012-8-14.

Following the acquisition of APLP, ATP’s financial profile weakened significantly, predominately due to higher leverage and weaker cash flow ratios. ATP’s balance sheet is expected to continue to be pressured by the ongoing high level of capex associated with the Canadian Hills and Piedmont Green Power projects in 2012. In the medium to long term, APT’s financing strategy is to reduce the consolidated debt-to-capital ratio (currently at 67%) to 50%. Should the Company successfully execute its deleveraging strategy and build a strong track record of maintaining a good financial profile, this will have a positive credit implication.

2 Responses to “AZP.PR.A & AZP.PR.B Put On Watch-Negative By S&P”

  1. […] This follows a similar announcement by S&P. […]

  2. […] previously reported the S&P CreditWatch Negative. The company is also under Review-Negative by DBRS, which has not yet been […]

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