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CreditSights downgrades Pattern Energy to 'underperform'

CreditSights on March 2 downgraded Pattern Energy Group Inc. to "underperform" based on its "relative financial and structural attractiveness" compared to other yieldcos.

The downgrade comes as Pattern Energy said March 1 it will pay a first-quarter 2018 dividend of 42.2 cents per class A share April 30 to shareholders of record March 30. The dividend remains unchanged from the fourth-quarter 2017 dividend.

"We continue to view [Pattern Energy Group] as having solid underlying assets, but its elevated payout ratio caused it to not raise the dividend for the first time since its IPO and the equity is down 7% on this news," CreditSights analysts wrote in the early morning report. "Not increasing the dividend ... will likely cause equity investors to reach out and pressure management to do more for them potentially at the expense of credit investors."

The quarterly dividend equates to a $165.2 million cash dividend payout ratio annually, which is 13.8% higher than the $145.2 million Pattern Energy paid out to shareholders in 2017, according to CreditSights.

Pattern Energy management, however, told investors on a March 1 earnings call that the yieldco did not like the idea of a dividend cut to balance out its elevated payout ratio because of "the market perception" that could create.

"We now have concerns that [Pattern Energy Group] could max out its revolver with incremental dropdowns and then could lever up by terming this out into bond issuance just to placate equity investors looking for continued earnings growth," the bond analysts wrote.