trending Market Intelligence /marketintelligence/en/news-insights/trending/rdbwcilyts2esrvmbdqqvq2 content esgSubNav
In This List

Moody's lowers Talen outlook following $500M dividend payment

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


Moody's lowers Talen outlook following $500M dividend payment

Moody's on Feb. 28 revised the outlook for Talen Energy Supply LLC to negative from stable and affirmed existing ratings following the company paying a $500 million special cash dividend to stockholders.

Moody's noted that although the dividend was funded primarily with free cash flow from operations and the sale of noncore assets, the cash outflow comes after the company's recent refinancing, and not repayment, of upcoming debt maturities.

"We view the distribution as indicative of a financial policy that favors shareholders with only a modest cushion for creditors," Moody's said. "Our previous stable outlook assumed that Talen would utilize the additional liquidity created by incremental operating cash flow and non-core asset sales to make operational enhancements, or to opportunistically reduce debt."

The dividend payment without materially reducing debt left Talen in a leveraged position, "with limited financial cushion to weather continuing weak market conditions or to invest in operations enhancing projects."

Moody's affirmed Talen's B1 corporate family rating.

Moody's also affirmed Talen's probability of default at B1-PD, senior secured debt rating at Ba1, senior unsecured guaranteed debt at B1, and senior unsecured and nonguaranteed debt at a B3 rating. The affirmations are a result of actions Talen took to improve financial performance by reducing cost and improving operations.

Moody's expects full-year 2017 and 2018 cash flow and cash flow-based credit metrics to remain strong and the company's ratio of cash flow from operations to debt, excluding changes in working capital, to be approximately 10%.

"Based on current power market conditions, absent additional operational enhancements, we expect credit metrics beyond 2018 will move lower, and that the company may be challenged to remain free cash flow positive. If these trends continue, the ratings could be downgraded," Moody's said.

Talen Energy Supply is a Riverstone Holdings LLC subsidiary.