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S&P Cuts Ratings on NRG to CCC
Xcel Energy subsidiary NRG Energy is fast approaching the basement of junk bond ratings levels. Standard & Poor’s (S&P) lowered its credit ratings to CCC from B-plus last Thursday due to NRG’s urgent need to sell off a massive number of power generation assets in order to meet a $1.3 billion collateral payment deadline of Sept. 13 or convince lenders it will be able to make the payments soon. S&P also lowered its credit rating on NRG Northeast Generating LLC’s bonds and NRG South Central Generating LLC’s bonds to CCC.
Lenders agreed in August to give NRG a short extension on making collateral payments of between $1.1 billion and $1.3 billion, which were triggered by a credit rating downgrade to junk status earlier this summer. In order to meet those payments, NRG plans to sell off about 12,300 MW of power generation, including its South Central U.S. power portfolio of about 7,420.1 MW of mostly gas-fired generation and its 4,880.2 MW of international power generation in Europe, the Asia-Pacific region and Latin America. The company anticipates raising more than $1.5 billion from the sales. However, given the abundance of power plants on the market, the company may have difficulty getting adequate value for the units or even finding interested buyers.
NRG’s survival depends on significant asset sales, the amount and timing of which is uncertain, noted S&P credit analyst Arleen Spangler. “NRG’s liquidity position is severely constrained and even if the banks continue to waive the collateral requirements under the $2 billion construction revolver, NRG would be challenged to meet debt service requirements without significant asset sales,” said Spangler.
While the company has made some progress with asset sales, the amounts have been minimal relative to what is needed to either collateralize the banks or improve overall credit quality, Spangler added. The bulk of the proceeds is not expected to be realized until the fourth quarter. In addition, decreasing wholesale prices have hampered NRG’s operating cash flow. The ratings on all three NRG companies remain on credit watch with negative implications.
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