S&P ups Star West loans, view to stable

S&P said it upgraded the rating on Star West Generation LLC’s $450 million senior secured loan and $50 million revolver to BB- from B+ and revised the outlook to stable from positive. Only $64.5 million is outstanding on the term loan. The agency also revised the recovery rating to 1 from 2.

“In our last review, we revised the outlook to positive as a result of the announced sale of Arlington Valley (579 MW) to Capital Power for around $300 million. We stated that we could raise the rating in the next 1-2 years if the sale was executed as planned and depending on both the financial performance and refinancing plans in 2019. We anticipated a one- or two-notch improvement based on minimum coverage improving to the upper end of the 1x-1.5x range from 0.73x (which was forecast for 2022), primarily because almost all the proceeds were used to pay down the term loan B, which stood at $97.5 million after the repayment,” said S&P in a press release.

The stable outlook indicates S&P expects the project’s spark spreads will be aligned with forward pricing. The agency said it expects the project to be sold before the term loan is due, but doesn’t assume that in its analysis. S&P said it expects coverages to be above 1.5x for the rest of the term loan, with the minimum debt service coverage ratio of 1.29x in the agency’s hypothetical refinancing scenario, which assumes mortgage-style amortization.

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