S&P Global Ratings revised its outlook on Innergex Renewable Energy Inc. to negative from stable, based on the company's weak financial metrics in 2018, and affirmed its 'BBB-' long-term issuer credit rating.
The outlook revision is in light of the recent nonrecourse financing to fund renewable asset acquisitions. The company acquired a 590-MW wind portfolio in Quebec in October from TransCanada Corp. for C$620 million through two one-year term credit facilities totaling C$628 million.
"Innergex has completed a number of acquisitions in 2018 that have increased leverage both through acquired debt and development financing at the corporate level. Although the company expects to de-lever in 2019 through asset level financing and asset sales, we believe that there is execution risk with this strategy. Our financial forecasts project Innergex moving back into the stable range of 24%-26% funds from operations (FFO)-to-debt in 2019," S&P Global Ratings said in a Dec. 27 rating action.
In December, the company secured C$570.4 million in project financing for four wind projects in Quebec.
Innergex plans to repay the debt by selling its geothermal assets in Iceland. However, "if the debt reduction strategy is delayed or the amount [of proceeds from the asset sale] is lower than expected, financial metrics might not recover to the 24%-26% range, which could result in a downgrade," the rating agency said.
If Innergex manages to repay the bridge and revolving credit facility with asset sales and bring the funds from operations-to-debt between 24% and 26%, S&P Global Ratings will revise the outlook to stable from negative.