Bangkok--17 Oct--Standard & Poor's
Standard & Poor's Ratings Services said today it lowered its rating on electricity provider Choctaw Generation L.P.'s pass-through trust certificates due 2023 and 2030 to 'BB' from 'BB+'. The outlook remains negative.
"The downgrade is based on our expectation that operating margins at the plant will remain pressured in the near term until there is a permanent solution to the nagging heat-rate efficiency issue at the plant," said Standard & Poor's credit analyst Matthew Hobby.
Availability problems in recent years have further pressured fixed-charge coverage at the project, resulting in continued fixed-charge coverage below 1x.
Choctaw, an indirect, wholly owned subsidiary of GDF Suez Energy North America (formerly Tractebel Power), is a 440 MW lignite-fired generating facility that sells power to the Tennessee Valley Authority (TVA; AAA/Stable/--) under a 30-year power purchase and operating agreement (PPOA). A 30-year lignite sales agreement with Mississippi Lignite Co. (unrated) protects margins, and the project passes through fuel costs associated with generation to TVA at an assumed heat rate significantly lower than the plant's actual heat rate.
The negative outlook reflects the likelihood that the 30-day scheduled major maintenance outage in September and October of 2008 will only partially address the ongoing heat rate issues at the project, and ultimate resolution may be a few years away. We could lower the rating further if the planned outage does not result in improved availability at the plant and corresponding increased debt service coverage ratios. A stable outlook would follow improved plant availability, and an upgrade is possible if the heat rate issues are ultimately resolved.
Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Credit Ratings Search.
Media Contact:
Edward Sweeney, New York, (1) 212-438-6634
[email protected]
Analyst Contact:
Matthew Hobby, New York (1) 212-438-6441