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US power sector saw more upgrades from Moody's, S&P in 2017

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US power sector saw more upgrades from Moody's, S&P in 2017

Credit ratings actions on U.S. power companies made by Moody's and S&P Global Ratings in 2017 were mostly upgrades and initiations.

TerraForm Power Inc.'s ratings saw the largest upward move, ending the year at three notches higher, although still below investment grade status. S&P Global Ratings raised its ratings on TerraForm Power from B- to BB- after Brookfield Asset Management Inc. affiliates completed the purchase of a 51% stake stake in the yieldco.

"We believe that with Brookfield's sponsorship, [TerraForm Power] will employ a more conservative financial policy and grow in a more restrained fashion, in keeping with what Brookfield has done with Brookfield Renewable Partners; this should help the portfolio reduce debt to a degree, even though, for the moment, we expect financial risk to be in the highly leveraged category," S&P Global Ratings said Oct. 17, 2017.

Atlantic Power Corp.'s continued effort to improve its credit metrics through cost cutting and debt reduction promoted Moody's to upgrade its corporate family rating to Ba3 from B1 on Oct. 2, 2017.

"Atlantic Power's cash flow coverage ratio has improved to around 10.4% for last twelve months through the second quarter of 2017 and we see further improvements going forward based on continued debt reduction," Moody's said.

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On the opposite side, S&P Global Ratings lowered SCANA Corp.'s issuer credit rating to BBB from BBB+ in light of the problems tied to the abandonment of the V.C. Summer nuclear plant expansion project.

"We could downgrade the ratings further if the [South Carolina Public Service Commission] orders large rate refunds or credits, or if the South Carolina legislature retroactively changes the law that underpins our expectation of substantial recovery of the nuclear plant investment," the rating agency said.

Earlier in February, Moody's downgraded SCANA's ratings to junk status.

PG&E Corp.'s ratings are also on review for possible downgrades by both rating agencies, despite improving by a notch earlier in the year. The reviews were prompted by the company's move to suspend its dividend payments.

"We view the decision to suspend the dividends as materially credit negative because it signals how management views the company's potential exposure to the Northern California wildfires," a Moody's analyst said in a Dec. 22 note.

Meanwhile, both rating agencies initiated coverage of Itron Inc., after the company announced financing plans for its acquisition of Silver Spring Networks Inc. The transaction was completed on Jan. 5.

Moody's reinstated its corporate family rating on the company at Ba3, which is three notches below investment grade. Meanwhile, S&P Global Ratings assigned Itron a BB corporate rating, which is two notches below investment grade.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.