S&PGlobal Ratings has placed FirstEnergySolutions Corp. and its unregulated affiliates on CreditWatch withnegative implications tied to the "substantial" $1.51 billion pretaximpairment charge the competitive business will incur from the of several Ohiocoal units.
"Whilethe charges are noncash, they underscore the diminishing value and cash flowsfrom the competitive merchant power supply business," S&P Ratings saidin a July 22 news release.
announced July22 that it will retire four 180-MW units at its 2,210-MW coal plant in May2020 and plans to sell or deactivate its 136-MW Bay Shore unit by October 2020 based onchallenging conditionsin the PJM Interconnection LLCmarket.
Shortlyafter the announcement, S&P Ratings placed its BBB-corporate credit ratingson FES and affiliates FirstEnergyGeneration, FirstEnergyNuclear Generation Corp., AlleghenyEnergy Supply Co. and AlleghenyGenerating Co. on CreditWatch with negative implications.
"Wewill resolve the CreditWatch listing after reviewing FirstEnergy Corp.'sstrategic plan anddiscussing the supply business's importance to the parent with management,"S&P Ratings said in its news release.
Thelisting affects approximately $3.6 billion in debt at FES and its affiliates,according to S&P.
Therating agency also noted the business risk profiles of FES and Allegheny EnergySupply, on a stand-alone basis, are "satisfactory and the financial riskprofiles are aggressive."
"Ourassessment is based on continuing pressure on financial measures, as reflectedin the adjusted funds from operations (FFO) to debt ratio, which has declinedbecause of milder weather, continued lower natural gas prices, weaker economicsof the companies' fossil and nuclear fleet, and downward revision in projectedretail sales," S&P said. "As part of our review, we will assessif the latest rounds of deactivation announcements and the continuing pressureon commodities could result in a revision in our assessment of the businessrisk profiles, which may have an impact on the [stand-alone credit profiles]."
Therating agency said it could lower the ratings of FES and Allegheny EnergySupply if it determines they are no longer core to the parent company.
In aseparate July 22 announcement, S&P said its ratings on FirstEnergy and itsregulated utility subsidiaries are not affected by the pretax impairment chargetied to the competitive business.
S&P Global Ratings andS&P Global Market Intelligence are owned by S&P Global Inc.