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Moody's revises outlook on TransAlta to positive

Moody's changed its outlook on TransAlta Corp. to positive from stable, citing the company's transition away from coal-fired generation in Alberta and its debt reduction program.

The positive outlook reflects Moody's view that TransAlta will continue with its plan to achieve its stated goal of a funds from operations to debt ratio of 25% to 30% by the end of 2020, the rating agency said in a June 1 report.

TransAlta in early March said it will make its planned coal-to-gas switching at its power facilities in central Alberta a priority in 2018 as it pivots to lower-emitting energy sources.

The company is also implementing a debt reduction plan, which Moody's views as credit positive. As part of the plan, the company redeemed its outstanding $500 million of 6.65% senior notes March 15.

"TransAlta's deleveraging plan is transformative," Moody's Senior Credit Officer Toby Shea said in the report. "We see over $1 billion of additional deleveraging, a more simplified capital structure, a material reduction in carbon risk exposure and stable contracted cash flows positioning the company with a strong credit profile as the Alberta market goes through a major redesign."

The rating agency also affirmed TransAlta's corporate family rating and senior unsecured rating at Ba1, and its probability of default rating of Ba1-PD.