AZP Put On Watch-Negative By S&P

Standard & Poor’s has announced:

  • Atlantic Power Corp. (APC) announced it has entered into an agreement to be acquired by I Squared Capital for $3.03 per share.
  • The ratings on our ‘BB-‘ issuer credit rating on APC are unchanged and we are placing the company’s ratings on CreditWatch with negative implications.
  • At the same time, we are placing the issue-level ratings on APLP Holdings L.P.’s term loan B, $180 million revolving credit facility, and Atlantic Power L.P.’s C$210 million medium-term notes on CreditWatch with negative implications.
  • We are also placing the preferred shares at Atlantic Power Preferred Equity Ltd. (APLP) on CreditWatch with negative implications.
  • The CreditWatch placements capture our view that the new sponsor could alter the capital structure.

S&P Global Ratings today took the rating actions listed above. Pro forma for the transaction, Atlantic Power’s financial policy will be determined by I Squared, which we would most likely designate a financial sponsor. We typically expect financial sponsors to use leverage to fund transactions to achieve returns. Consequently, ratings are generally lower for financial sponsor-owned companies than strategically owned entities. However, I Squared indicated it plans to redeem some debt and reorganize APC’s capital structure. We will monitor and reassess financial policy, forward leverage, and any changes to the business strategy as we obtain additional clarity on I Squared’s plan and as the transaction approaches financial close.

Following the necessary approvals by APC’s board, shareholders, and regulators, we anticipate common shareholders will receive $3.03 per share at the close of the transaction. The unsecured convertible debt due Jan. 31, 2025, will be converted to common shares for $3.03, plus accrued and unpaid interest. The company’s senior secured term loan will also be redeemed at 101% of principal. Atlantic Power Preferred’s shares will be redeemed for C$22 each in cash. Atlantic Power L.P.’s 5.95% medium term notes due June 23, 2036, will be redeemed for consideration equal to 106.071% of the principal amount plus accrued and unpaid interest at financial close.

The CreditWatch listing reflects the likelihood that I Squared’s financial policy will inform the rating on Atlantic Power pro forma for the transaction. We would most likely classify I Squared as a financial sponsor. Consequently, any rating implications will depend on the forward capital structure, our assessment of the business strategy, and most important how we assess I Squared’s financial policy with regard to APC. We will likely resolve the CreditWatch when the transaction closes, projected for the second quarter of 2021.

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

I have previously reported the proposed redemption at $22 of these issues.

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