Aquila. Inc. said late Wednesday that the recent credit ratings downgrades of Dynegy Inc., “together with other adverse circumstances and events, have decreased the likelihood” that its acquisition of privately held Cogentrix Energy can be completed as planned. Aquila charged that the downgrades by Standard & Poor’s, Fitch Ratings and Moody’s Investors Service “are expected to cause a Dynegy subsidiary to default under a sizeable agreement to purchase power from a Cogentrix subsidiary, calling into question the Aquila-Cogentrix agreement.”
The Kansas City-based company signed a definitive agreement in late April to purchase 15 Cogentrix combined-cycle power plants in service or under construction for $415 million and the assumption of debt (see Power Market Today, May 1). The transaction was expected to close in the third quarter.
Although Aquila is pointing to Dynegy’s poor credit rating, which is rated as “junk” by all of the ratings services, S&P did not look too well on the Cogentrix deal from the start. Noting that it would add both positive and negative elements to Aquila’s credit profile, “on balance, it has a greater potential to lower the company’s overall credit quality,” S&P wrote in mid-May following an analysis.
“While the addition of Cogentrix’s high-quality generating asset portfolio with little exposure to electricity market swings will marginally improve Aquila’s overall business risk, the transaction is expected to negatively affect the company’s coverage ratios and other credit protection measures. Managing the acquisition process and integrating the Cogentrix assets will offer challenges to Aquila, at a time when the energy and capital market conditions are exerting added pressure on the company’s creditworthiness. Ultimate resolution of the CreditWatch listing for Aquila will rest on the successful completion of the Cogentrix purchase and the company’s strategic response to the credit concerns raised by the deal and other developments that have placed greater stress on Aquila’s credit profile,” S&P said in May.
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