S&P rates Astoria loans BB-, B

Standard & Poor's said it assigned a preliminary BB- rating with a 1 recovery rating to Astoria Generating Co. Acquisitions LLC's proposed $430 million first-lien term loan B due in 2013, a BB- preliminary rating with a 1 recovery rating to Astoria's first-lien $100 million working-capital facility and $120 million synthetic letter of credit facility and a B preliminary rating with a 3 recovery rating to its proposed second-lien $300 million term loan C due seven and a half years from closing.

The outlook is stable.

S&P said the rating incorporates the following risks: the company's exposure to commodity risk, a refinancing risk with seven-year bullet maturity in 2013, upcoming high environmental capital expenditures, a lack of a dedicated debt service reserve for the benefit of the lenders, interest rate risk as the company is required to fix only 50% of the principal for three years and a second-lien covenant package that may possibly dilute the first-lien holders' recovery after default.

The following strengths mitigate the risks: Astoria's plants benefit from an administratively determined capacity price, a heat rate option with Morgan Stanley that locks in energy margins for the first two years of the financings, an ability it to burn cheaper No. 6 fuel oil instead of natural gas and Astoria has little construction risk, as the plants have a long operating history, the agency said.

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