PrefBlog

Amidst all the wreckage of the past … year, it’s nice to see a little ray of sunshine!

Standard & Poor’s has announced:

• •U.S. power generator Atlantic Power Corp. (APC) has reduced its debt leverage substantially over the past 18 months.
• •We are raising our corporate credit ratings on Atlantic Power Corp. (APC)
  and affiliate Atlantic Power Ltd. Partnership (APLP) to ‘B+’ from ‘B’. The outlook is stable.

• •In addition, we are raising the issue ratings on the $600 million secured term loan facility ($473 million outstanding) and $210 million secured revolving credit facility to ‘BB-‘ from ‘B+’. The recovery rating on this debt remains ‘2’, indicating expectations of substantial (70% to 90%, at the higher end of the range) recovery in a payment default.
• •At the same time, we raised our rating on the C$210 million 5.95% medium-term notes (MTN) due 2036 to ‘BB’ from ‘BB-‘. The recovery rating on this debt remains ‘1’, indicating expectations of very high (90% to 100%) in a default.
• •The stable outlook reflects our expectation that the company will use excess cash flow to sweep down debt and its consolidated debt to EBITDA will decline to about 5.75x to 6.0x by year-end 2016.

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About $835 million of rated debt is currently outstanding, consisting of about $473 million of the term loan B, $210 million of revolving credit facility and C$210 million (U.S.$151 million) of medium-term notes. There is about $108 million of nonrecourse project level debt and about $288 million of U.S and Canadian dollar denominated convertible unsecured subordinate debentures that we do not rate. The company’s capital structure also has C$225 million of perpetual preferred stock.
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The company has sold five non-APLP wind assets along with which about $250 million of nonrecourse project debt was also transferred. The company has also refocused its strategy on maintaining and optimizing its fleet instead of growing its portfolio. As a result of these changes, we believe the company is structured more as a corporate issuer than a developer and now assess Atlantic Power under our corporate rating methodology.

“Our ‘B+’ corporate credit rating on APC reflects our assessment of its business risk profile as fair and a financial risk profile as highly leveraged,” said Standard & Poor’s credit analyst Aneesh Prabhu. Our business risk assessment reflects the company’s reliance on distributions from its underlying portfolio of power generation projects, limited scale, its near-term focus on operational improvements in its existing assets rather than growth projects to increase cash flow, and a portfolio that is mostly contracted in the medium term but has recontracting risk emerging from 2020. The financial risk profile reflects high consolidated debt per kilowatt and credit measures commensurate with an assessment of a highly leveraged financial risk profile.
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A deterioration in financials because of operating cost increases in the short term, or an inability to recontract expiring PPAs over the next year, could pressure financial measures. We would lower the ratings if consolidated debt to EBITDA deteriorates above 6.5x with no expectation of an immediate decline.

A ratings upgrade will result if cash flow sweeps result in adjusted FFO to debt improving above 12% on a sustained basis, or if consolidated debt to EBITDA declines below 5.25x. We could see this happen by year-end 2017 if cash flow sweeps occur as expected in our base-case.

Affected issues are AZP.PR.A, AZP.PR.B and AZP.PR.C, which are issued by Atlantic Power Preferred Equity Ltd., a wholly owned subsidiary.

This entry was posted on Friday, February 12th, 2016 at 3:26 am and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.