S&P downgrades KGen

Standard &Poor's said it lowered its ratings on KGen LLC's senior secured credit facilities to BB- from BB due to weak market price prospects.

The outlook is negative.

The agency said the rating change follows its review of the project's lower cash flow prospects over the medium term and factors in the sale of the 640 MW Sandersville peaking unit that ArcLight will buy for about $130 million.

If received before June 30, sale proceeds will flow through the cash flow waterfall and result in term loan B debt reduction to about $134 million, a total liquidity balance of $50 million, repayment of the $10 million working capital facility drawdown and a small distribution to parent KGen Power. S&P said that if received after June 1, the proceeds will still go through the waterfall, but the cash flow sweep would not take place until June 30, 2011; KGen would likely work with lenders to effect some type of debt reduction.

The agency said the negative outlook reflects the potential for liquidity use to help meet obligations from 2013 unless markets improve or new offtake contracts are secured.

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