AZP Now Outlook-Positive, Says S&P

Standard & Poor’s has announced:

  • •Atlantic Power Corp.’s (APC) leverage improved in 2018 and we believe the Boston-based publicly traded power generation company’s deleveraging trend is likely to continue, supported by the predictability of cash flows from power purchase agreements (PPAs) in the portfolio.
  • •We expect APC to complete the acquisition of two biomass projects in South Carolina with long-term PPAs during the second half of 2019, which will help mitigate some recontracting risk.
  • •S&P Global Ratings is affirming our ‘B+’ issuer credit rating, our ‘BB-‘ issue-level rating on APC’s senior term loan B, senior revolving credit facility, and medium-term notes, and our ‘CCC+’ issue-level rating on the preferred shares.
  • •Our ‘2’ recovery rating on all debt tranches is unchanged, indicating our expectation for substantial recovery (70%-90%; rounded estimate: 80%) in the event of a default.
  • •The positive outlook reflects a possibility that we could upgrade APC by one notch because we believe the company can achieve our adjusted debt to EBITDA of below 5x in the next 12 months.

If APC meets our adjusted debt-to-EBITDA projection of below 5x, it would likely be supported by deleveraging through excess cash flow sweep on the term loan B in line with management’s guidance and by demonstrating its ability to continue extending expiring PPAs. The rating could also improve if the company continues to pursue growth opportunities while maintaining S&P Global Ratings’ adjusted leverage.

We could revise the outlook back to stable if our adjusted debt to EBITDA indicates an increasing trend above 5x on a sustained basis. This may be due to the inability to recontract expiring or obtain new PPAs, aggressive growth strategy through incremental debt issuances, or higher-than-expected operating costs to maintain power assets in the portfolio, creating volatility in cash flows available for debt service.

Affected issues are AZP.PR.A, AZP.PR.B and AZP.PR.C.

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