latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/improved-conditions-prompt-flurry-of-refinancing-for-pjm-merchant-assets-47010469 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

Improved conditions prompt flurry of refinancing for PJM merchant assets

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August

Improved conditions prompt flurry of refinancing for PJM merchant assets

Despite a glut of cheap natural gas that has kept energy prices low, refinancing prospects for merchant generation assets in PJM Interconnection have improved over the past year.

Higher yields in PJM's most recent capacity auction in May, planned closures of several projects and a spike in energy prices resulting from recent weather events have all contributed to lower refinancing risk, according to an Oct. 10 report by Moody's Investors Service

Over $3.6 billion of debt has been deployed in refinancings of Moody's-rated projects in the past 18 months, according to the report, which noted that "there is ample capital for the sector." The post-auction promise of higher revenues has intensified the will to refinance merchant assets in PJM, leading to a spate of deals from private equity-owned plants.

The 703-MW St. Joseph Energy Center in St. Joseph County, Ind., which Moody's rates Ba3 with a stable outlook, upsized its term loan B by $15 million to $422.7 million following the auction. The project is majority-owned by Ares EIF Management LLC, with a 62% shareholding. Toyota Tsusho Corp. and Development Partners Group own 20% and 18% of the project's equity, respectively, according to S&P Global Market Intelligence data.

In July, Blackstone Group LP-ArcLight Capital Partners LLC joint venture, Lightstone Generation LLC, added $300 million to its existing term loan, which ballooned to $1.86 billion following the auction results. The portfolio company also benefited from improved operating and financial performance over the expectations at the time of its financing in November 2016, according to Moody's.

Kestrel Acquisition LLC, the Ba3-rated acquisition vehicle for Platinum Equity Advisors LLC's successful purchase of NRG Energy Inc.'s 800-MW Hunterstown facility in Adams County, Pa., also increased its term loan to $400 million from $375 million.

While refinancing risk has diminished for coal-fired projects as well as gas-fired assets, there have been no standalone refinancings of coal-fired plants to date, according to the report, nor have any sponsors refinanced primarily coal-fired portfolios.

However, Moody's expects ArcLight-owned Chief Power Finance LLC to be the next PJM project up for refinancing, according to the report as the company's revolving credit facility nears its maturity date of December 2019. Chief Power owns 44.45% and 35.11% stakes in two western Pennsylvania coal-fired assets, the Keystone and Conemaugh plants, respectively.

New combined-cycle plants to offset retirements

PJM's average around-the-clock power prices in the first quarter of 2018 were 35% higher year-over-year, with energy prices increasing due to weather conditions in the early months of the year. Average dark spreads — the metric used to estimate return-over-fuel cost for coal-fired plants increased 81% in the first half of the year, a significant change from a 23% dip seen in the first half of 2017.

The pace of coal-fired and nuclear plant retirements has been a stabilizing force for the market, with Moody's analysts offering a possible correlation between higher capacity prices in most zones in PJM and FirstEnergy Solutions Corp.'s planned retirement, announced in August, of more than 4,000 MW of coal and oil capacity.

After factoring in recent announcements of closures, PJM is expected to lose 17.8 GW of generation through 2022, offsetting some concerns of an overbuilt gas-fired market. Most recently, American Electric Power Co. Inc. announced it will shutter its 1,530-MW Conesville plant in Coshocton County, Ohio, at the end of May 2020.

Moody's calculated new gas-fired combined-cycle generation turbine plants will add 18.5 GW of capacity over the same period.

"Although delays could occur prior to commercial operations, approximately 10.5 GWs are already under construction," Moody's analysts wrote. "This amount of new, efficient [combined-cycle gas turbine] capacity will pressure the economics of coal-fired generation and older, less efficient gas-fired plants."