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S&P upgrades AES on debt reduction acceleration

S&P Global Ratings raised its corporate credit rating on AES Corp. to one notch below investment grade on expectations of the company accelerating debt reduction with proceeds from asset sales.

S&P updated AES to BB+ from BB on March 16. The ratings outlook is stable.

"With the debt pay down, adjusted [funds from operations] to debt will improve to just over 17.0% from about 13.5% and over 19.0% by 2019. This puts the company on the higher end of the aggressive financial risk profile range," S&P said.

AES offered to purchase up to $700 million of its 5.5% senior notes due 2024 and 5.5% senior notes due 2025. The company released the early results of the tender offer on March 15.

The tender offer is dependent on the company receiving cash proceeds from the sale of its 51% equity interest in its Philippines subsidiary to SMC Global Power Holdings Corp. for $1.05 billion. S&P expects the sale to conclude by the first half of 2018.

As part of this rating action, S&P also upgraded AES' senior unsecured debt rating to BB+ from BB and affirmed the senior secured debt rating at BBB-.

This also prompted S&P to raise its issuer credit ratings on AES subsidiaries IPALCO Enterprises Inc. and Indianapolis Power & Light Co. to BBB from BBB- with a stable outlook.

"The upgrades of IPALCO and IPL reflect the upgrade at ultimate parent AES, the strength of IPALCO's stand-alone credit profile, and the cumulative value of structural protections in place that insulate IPALCO from AES," S&P said in a separate March 16 research report.

S&P also upgraded ratings on IPALCO's senior notes to BBB- from BB+ and IPL's senior secured first-mortgage bonds to A- from BBB+ and preferred stock to BB+ from BB.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here and here.