Moody's rates Lonestar II loans Ba3

Moody's Investors Service said it assigned Ba3 ratings to Lonestar II Generation Holdings LLC's $250 million senior secured term loan B due 2026, $30 million senior secured term loan C due 2026 and $20 million revolving credit facility due 2024.

The outlook is stable.

The proceeds from the senior secured term loan B will be used to pay a $240 million distribution to the sponsor and to pay transaction related costs, Moody's said.

The term loan C will be used as collateral for letters of credit and the revolving credit facility for working capital financing and general corporate purposes, the agency said.

The rating balances the hedges in place that guarantee a hedged margin of about $163 million in 2019 and 2020 on a combined basis against the merchant nature of the portfolio of three generating facilities and the high volatility of electricity prices in Electric Reliability Council of Texas (ERCOT), Moody's said.

The portfolio's operating revenue and its ability to service its debt over the long-term, is highly reliant on peak and scarcity pricing during summer months when it generates the majority of its energy margin, the agency said.

Recent coal retirements and a tighter reserve margin have supported improved pricing in 2018 and forward curves indicate the potential for continued high on-peak power prices in particular during the summer months, Moody's said.

However, the agency cautioned that power prices in ERCOT remain subject to high volatility and are highly dependent on summer temperatures, which are difficult to predict.

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