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.
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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.