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Industry Report Card: The Outlook On The U.S. Merchant Power Sector Is Negative

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Industry Report Card: The Outlook On The U.S. Merchant Power Sector Is Negative

Our ratings on the U.S. unregulated power sector continue to face significant headwinds and negative ratings actions far outpace positive ones. We have written on the impact of the Texas freeze (see "Texas Power Failure: Picking Up Nickels In Front Of Steamrollers")and the importance of firm power (see "Without Firm Power, U.S. Independent Power Producers' Credit Could Soften"). Here we provide a comprehensive overview of ratings trends during the past year, focusing on U.S. merchant power companies. We exclude contracted power and those without merchant exposure from this list as the credit drivers mainly center on counterparty credit quality and are less driven by market forces.

We publicly rate 32 unregulated power companies that operate on a primarily merchant basis. We include an additional four private ratings in the charts below, two of which currently have negative outlooks. The median rating is 'BB-' (see chart 1 for the current ratings distribution).

Chart 1

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The negative rating trend worsened in the past year as 39% of the ratings in the portfolio have a negative outlook or are on CreditWatch negative. Among the 'B' and 'CCC' category, 64% are on CreditWatch negative or have a negative outlook.

Chart 2

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More than half of our merchant power ratings are on assets located in PJM and including portfolios across multiple ISOs, this figure is closer 75%. Approximately 6% of our ratings are in each of ISO-NE, NYISO Zone J, and ERCOT.

Chart 3

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Upgrades And Downgrades

Downgrades and negative actions have far outpaced upgrades during the past year (see chart 4). We expect this trend could worsen if market conditions do not rebound from 2020 lows.

Chart 4

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Chart 5

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Why have ratings deteriorated?

With the onset of the COVID-19 pandemic in March 2020, load declined across the U.S. and wholesale around the clock power prices subsequently declined 20%-25% relative to already low 2019 levels. This has led to lower capacity factors and lower realized margins for the merchant fleet, putting downward pressure on coverage levels and ratings. Additionally, the minimal required amortization nature of the term loan B structures has led to lackluster deleveraging and leakage (distributions to equity following a year of good performance). Some projects have amended sweep structures to lower required debt pay down and others have upsized term loans and obtained waivers from lenders. These actions can put projects in a more vulnerable position during volatile years such as 2020. We will discuss performance of term loan Bs in our next commentary.

Chart 6

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Retail offsets, but does not eliminate risk

We rate five companies with a meaningful retail presence. We generally believe retail is a good hedge and a balanced retail/wholesale book is favorable for credit. However, ratings deteriorated in this segment in the first quarter of 2021. We placed our ratings on Vistra Corp. and NRG Energy Inc. on CreditWatch with negative implications because of the negative effects of the Texas Freeze. We lowered our ratings on both PSEG Power and Exelon Generation as a result of the utility parent's plans to spin off or sell the unregulated subsidiary. We also lowered our rating on Energy Harbor two notches due to the loss of stable Clean Air Credits. While retail provides some level of insulation relative to volatile wholesale prices, it does not insulate these companies from other systemic operating risks as price takers in a competitive market.

Table 1

Wholesale And Retail Power Company Recent Rating Actions
Company Date Rating Change From
PSEG Power LLC 8/5/2020 BBB/Stable/-- BBB+/Stable/--
Exelon Generation 2/24/2021 BBB-/Stable/-- BBB/Negative/--
Vistra Corp. 2/26/2021 BB+/Watch Neg/-- BB+/Positive/--
NRG Energy Inc. 3/17/2021 BB+/Watch Neg/-- BB+/Positive/--
Energy Harbor Corp. 3/29/2021 BB/Stable/-- BBB-/Watch Neg/--
What could lead to lower ratings for the portfolio?

In December 2020, we published our expectations for 1% load growth and marginally higher spark spreads in 2021. We still expect an improvement, in accordance with our recently published expectation for 6.5% U.S. GDP growth in 2021. However, a resolution of several of the negative outlooks and CreditWatch placements will largely depend on the upcoming PJM capacity auction's clearing price. A number of power projects in the 'B+' and 'BB-' categories have minimal DSCR cushion against our downgrade thresholds, and we estimate that a PJM clearing price lower than $90/megawatt-day could lead to lower ratings for part of the portfolio. In 2020, we saw minimal debt repayment via cash flow sweeps and would expect to lower ratings should projects fail to generate positive free cash flow and deleverage in 2021.

Portfolio And Outlook Overview

Below we detail each of the merchant power ratings and current outlook.

Table 2

U.S. Merchant Power Companies
Company Rating Outlook Description Outlook Assets ISO
PSEG Power LLC BBB Stable PSEG Power generates and markets power and natural gas primarily in the Northeast and mid-Atlantic U.S. The company generates power from nuclear, coal, gas, oil-fired, and renewable generation assets. The stable outlook on PSEG Power reflects our view of the company as strategically important to its parent, PSEG, and our expectations that we are unlikely to change the rating following the conclusion of the planned sale of the company's fossil fuel and solar assets. Should PSEG successfully complete the sale, we are unlikely to rate the new standalone PSEG Power, which will primarily consist of the company's nuclear assets, any lower than 'BBB'. Similarly, should the company abort the sale, an upgrade above its current level would be unlikely based on the ratings implications of our view of PSEG Power's importance to its parent company. Portfolio Multiple
Exelon Generation Co. LLC BBB- Stable Exelon Generation Co. LLC is one of the largest merchant power generators in the U.S. and among the largest power service providers in the county, with more than 31.6 gigawatts (GW) of owned generation capacity, and about 150-155 TWh of retail load and 50 TWh of wholesale load. The company enjoys significant regional diversity, participating in the Midwest, Mid-Atlantic, Texas, New York, and New England markets, as well as the Canadian and U.S. South and West markets (usually grouped because of the smaller exposure). ExGen is now a non-strategic company in the Exelon Corp. group. After all regulatory approvals are received and the company is spun off into an independent company, we will remove it from the Exelon group. We believe ExGen's business risk profile has weakened because we see its competitive advantage eroding from pressures of declining costs for renewable power that is also becoming firmer as storage technologies advance. While we see ExGen's business risk as satisfactory, we now see it at the lower end of the range. To maintain ratings, we expect adjusted FFO to debt above 30% on a sustained basis. Similarly, we expect adjusted debt to EBITDA below 3.0x on a sustained basis and at about 2.85x through 2024. Portfolio Multiple
Vistra Energy Corp. BB+ Credit Watch Negative Vistra Corp., together with its subsidiaries, engages in the electricity business in the United States. It operates through six segments: Retail, Texas, East, West, Sunset, and Asset Closure. The company retails electricity and natural gas to residential, commercial, and industrial customers across 20 states in the United States and the District of Columbia. It is also involved in the electricity generation, wholesale energy sales and purchases, commodity risk management, fuel production, and fuel logistics management activities. The company serves approximately 4.5 million residential, commercial, and industrial customers. It has a generation capacity of approximately 38,700 megawatts with a portfolio of natural gas, nuclear, coal, solar, and battery energy storage facilities. The company was formerly known as Vistra Energy Corp. and changed its name to Vistra Corp. in July 2020. Vistra Corp. was founded in 1882 and is based in Irving, Texas. The CreditWatch placement follows Vistra's announcement that it expects the dislocation of its operations caused by the polar vortex to have a $900 million-$1.3 billion impact on its cashflow. The company is not a tax payer due to its carryforward losses, thus the storm's effect will directly translate into a reduction in its funds from operations (FFO). The company also announced its 2020 financial results, which surpassed our previous expectations for the year. Specifically, Vistra's adjusted EBITDA exceeded our expectation of about $3.10 billion-$3.25 billion. The company's performance through the pandemic has enabled it to establish a track record for its integrated wholesale-retail business model. However, the massive impact from Winter Storm Uri has overwhelmed the benefits from its 2020 performance Portfolio Multiple
NRG Energy Inc. BB+ Credit Watch Negative NRG Energy, Inc., together with its subsidiaries, operates as an integrated power company in the United States. It operates through Texas, East, and West. The company is involved in the producing, selling, and delivering electricity and related products and services to 3.6 million residential, industrial, and commercial consumers. It generates electricity using natural gas, coal, oil, solar, nuclear, and battery storage. The company also provides system power, distributed generation, renewable products, backup generation, storage and distributed solar, demand response, energy efficiency, advisory, and on-site energy solutions; and carbon management and specialty services. In addition, it trades in electric power, natural gas, and related commodities; environmental products; weather products; and financial products, including forwards, futures, options, and swaps. Further, the company procures fuels; provides transportation services; and directly sells energy, services, and products and services to retail customers under the NRG, Reliant, Green Mountain Energy, Stream, XOOM Energy, and other brand names. As of December 31, 2020, it owns power generation portfolio with approximately 23,000 megawatts of capacity at 33 plants. NRG Energy, Inc. was founded in 1989 and is headquartered in Princeton, New Jersey. Based on information currently available, we think much of the financial impacts are now baked into storm-related loss estimates. However, the company was in the midst of a planned $1.1 billion deleveraging and that effort will fall short. Still, the company was deleveraging in the pursuit of higher ratings. Our downgrade triggers are net debt to EBITDA of above 4x and funds from operations to debt falling below 22.5% and NRG's financial ratios will be below these levels in 2021. We believe we could resolve the CreditWatch listing at the rated level but there are uncertainties, the effect of which we cannot yet fully ascertain. These uncertainties could increase the costs for the company and delay a restart on its deleveraging campaign. Even if there is an eventual downgrade, we expect it will not be more than a notch. We note that NRG's senior secured debt is rated up to two notches higher than its issuer credit rating.As this is an evolving credit situation, we will update the CreditWatch listing as new material information is available. We expect to resolve it over the next several weeks to two months. Portfolio Multiple
Elwood Energy LLC BB+ Stable Elwood is a 1,350-megawatt (MW) peaking plant about 50 miles southwest of Chicago. The project is fully merchant and has nine simple-cycle 7FA combustion turbines sourced from General Electric Co. Each turbine earns revenue by selling production capacity and electricity into PJM Interconnection LLC's (PJM) ComEd power market. The stable outlook reflects our view that Elwood's operations remain consistent and in the absence of any operational difficulties, we forecast average coverage ratios will be relatively high at 2.68x, and a minimum DSCR of 1.75x. In addition, we view the fully amortizing debt profile as credit positive. Single Asset PJM - ComEd
Carroll County Energy LLC BB Stable CCE is a 700-megawatt (MW) combined-cycle natural gas-fired power plant. The project is located in Carroll County, Ohio, and dispatches into the American Electric Power (AEP) zone of the PJM Interconnection. The project is owned by AP Carroll County Holdings LLC (18%), San Jacinto Carroll Holdings LLC (11.5%), 730 Carroll LLC (40%), Jera Power U.S.A. Inc. (20%), and Ullico Infrastructure Carroll County HoldCo LLC (10.5%). The stable outlook reflects our expectation that CCE will be able to generate sufficient cashflow to maintain an average DSCR of about 2.1x with a capacity factor in the 80%-85% range over the next five years. We also expect $321 million debt outstanding at maturity in 2026, the project's minimum DSCR to be 1.95x in 2035, and excess cash sweep between $15 million to $20 million in the next 12 months. Single Asset PJM - AEP
CPV Shore Holdings LLC BB Stable The Woodbridge Energy Center is a 725 MW combined-cycle gas-fired power plant located in Middlesex County, N.J. in the Eastern Mid-Atlantic Area Council (EMAAC) zone of the PJM Interconnection. The project is owned by: CPV Shore Investment LLC (37.53%), Toyota Tsusho Shore LLC (31.25%), Osaka Gas Shore LLC (20.00%), and John Hancock Life Insurance Co. (USA) (11.22%). The stable outlook reflects our view that CPV Shore would be able to generate sufficient cash flow to maintain an average DSCR 2.2x in 2020 with a minimum of 1.49x in 2022. We also expect the project to sweep between $22 million and $27 million in 2020. Single Asset PJM - EMAAC
Edgewater Generation LLC BB Negative The 3,187 megawatt (MW) Edgewater portfolio consists of five natural gas-fired assets, with some of which have dual-fuel capability. The 1,320-MW Fairless Power Station (Fairless) is located in Pennsylvania within the Pennsylvania-New Jersey-Maryland Interconnection (PJM). Also within PJM are the 545-MW West Lorain peaking facility near Lake Erie in Lorain, Ohio and the 309-MW Garrison facility in Dover, Del. The 510-MW Manchester Street Power Station (Manchester) is located in Rhode Island within Independent System Operator New England (ISO-NE), and the 503-MW RockGen facility is located in Christiana, Wis. within the Midcontinent ISO region (MISO). The negative outlook reflects our view that Edgewater could face some pressure maintaining a DSCR of 1.85x and sweep below our $20 million-$38 million target on the term loan B through excess cash flow if the recovery in the power sector after the pandemic is slower than expected and market fundamentals continue to be unfavorable. Portfolio Multiple
Astoria Energy LLC BB- Stable AE is a nominal 615-megawatt (MW) combined-cycle natural gas-fired power plant in Zone J (NYC), a highly constrained and competitive electricity region in NYISO. The power plant commenced commercial operations in mid-2006, supplying most of its power to Consolidated Edison Inc. under a 10-year power purchase agreement through mid-2016, and it became a fully merchant generator when that contract expired. The facility consists of two GE PG7241 (7FA) combustion turbine generator (CTG) sets, two Alstom heat recovery steam generators (HRSGs) with supplemental firing capability, and one Alstom Model STF25 steam turbine generator (STG). Natural gas is the primary fuel. Low sulfur distillate fuel oil is stored onsite and serves as a backup fuel. The facility is owned by Astoria Power Partners Holding LLC (APPH). In addition, APPH owns an approximately 55% interest in Astoria Energy II LLC (AEII), a dual fuel-fired combined-cycle facility with a nominal capacity of 615 MW. The facility began commercial operations on July 1, 2011. Natural gas is the primary fuel and low sulfur distillate fuel oil is stored onsite as backup fuel. AEII is fully contracted through June 30, 2031, under a 20-year tolling agreement with the New York Power Authority (NYPA). NYPA is responsible for all fuel and emissions costs, and holds title to all products made available by the facility. AE will rely on approximately 55% of the distributions from AEII to service its debt. The stable outlook reflects our expectation that Astoria will operate in line with historical performance and generate strong DSCRs for the rating level through TLB maturity. Under our base-case scenario, we generally expect the project will achieve DSCRs in the 2.0x area until the TLB matures in December 2027. We also expect that minimum DSCR will remain above 1.6x in the post-refinancing period (2027-2038), in which we assume a fully amortizing debt structure. Single Asset NYISO Zone J
EFS Cogen Holdings I LLC BB- Stable EFS Cogen Holdings I LLC (EFS Cogen) is a special-purpose, bankruptcy-remote entity that owns two gas-fired, combined-cycle cogeneration facilities at the site of the Phillips 66 Bayway Refinery in Linden, N.J. The assets are the 806 megawatt (MW) Linden 1-5 facility, completed in May 1992, and the 165 MW Linden-6 facility, completed in January 2002. Linden 1-5 sells power on a merchant basis into the New York Independent System Operator (NYISO) Zone J market, and sells steam to Infineum USA LP and Phillips 66 under long-term contracts that expire in April 2032. Linden 6 provides power for the Phillips 66 Bayway Refinery, selling up to 165 MW of electricity to Philips 66, with any electricity not used by Phillips 66 sold on a merchant basis into the Pennsylvania-New Jersey-Maryland Interconnection LLC (PJM). Linden 6 also sells 20 MW of electric capacity on a merchant basis into PJM. Linden 6 produces around 10% of the project's total cash flow. The stable outlook reflects our view that EFS Cogen will continue to operate in line with historical performance and generate strong DSCRs for the rating level through TLB maturity, as well as in the 2x area over the next two years. We also expect that the minimum DSCR will remain above 1.3x in the post-refinancing period (2027-2035), in which we assume a fully amortizing debt structure. Single Site with multiple units NYISO Zone J
St. Joseph Energy Center, LLC BB- Stable St. Joseph Energy Center LLC (SJEC) is a 709-megawatt (MW) natural gas-fired combined cycle generation facility (CCGT) in New Carlisle, Ind., in the American Electric Power (AEP) zone of the PJM market. The stable outlook reflects our expectation that the project's performance will remain strong, with capacity factors at about 90% and unhedged spark spreads in the $7.0-$9.5 range in the next 12 months. We project DSCRs above 2.0x until 2025, and a minimum of about 1.47x in the post-refinancing period. We expect the project will have about $305 million outstanding at maturity on its term loan B. Single Asset PJM - AEP
Oregon Clean Energy LLC BB- Stable OCE is an 870-megawatt (MW) combined cycle gas-fired power plant in Oregon, Ohio, located in the American Transmission Systems Inc. (ATSI) zone of the PJM market. Ares EIF and I-Squared Capital own the project through a 50-50 joint venture. The stable outlook reflects our expectation that OCE will pay down approximately $195 million of its TLB through its cash flow sweep and mandatory amortization through 2025. We anticipate the DSCR during the next 12 months will be about 1.62x, with a minimum of 1.57x over the project's useful life. Single Asset PJM - ATSI
Atlantic Power Corp. BB- Credit Watch Negative Boston-based APC owns and operates a diverse fleet of power generation assets including hydroelectric, biomass, and natural gas. APC's portfolio includes interest in 21 operational power generation projects across the U.S. and two provinces in Canada. Its power projects in operation have an aggregate gross electric generation capacity of about 1,900 megawatts. The CreditWatch listing reflects the likelihood that I Squared's financial policy will inform the rating on Atlantic Power pro forma for the transaction. We would most likely classify I Squared as a financial sponsor. Consequently, any rating implications will depend on the forward capital structure, our assessment of the business strategy, and most important how we assess I Squared's financial policy with regard to APC. We will likely resolve the CreditWatch when the transaction closes, projected for the second quarter of 2021. Portfolio Multiple
Eastern Power LLC BB- Stable Eastern is a project-financed portfolio of six merchant assets totaling 3.7 gigawatts (GW). These plants service PJM (American Electric Power, AEP, and Commonwealth Edison, ComEd, zones) and New York Independent System Operator (NYISO, Zone J). Plants are: Rolling Hills: 850 megawatts (MW) CT, sells into PJM AEP Crete: 328 MW CT, sells into PJM ComEd Lincoln: 656 MW CT, sells into PJM ComEd U.S. Power Generating: three peaking facilities totaling 1,951 MW in NYISO Zone J (Astoria, Gowanus, Narrows). Rolling Hills, Crete, and Lincoln are relatively young plants with a weighted age of 16 years, while the New York peakers are relatively old with a weighted age of 57 years. Combined, these assets have a weighted age of 35 years by nameplate capacity The stable outlook reflects Eastern Power's reliance on predictable capacity payments for most of its cash flow over the next few years, our expectations for sound operational performance, and debt outstanding on the term loan at refinancing of around $525 million (after the assumed Gowanus and Narrows residual asset sale). We expect robust DSCRs near and above 2x until refinancing in 2025 when DSCRs drop to 1.32x minimum in our analysis. We further expect stable operational performance and robust cash sweeps or voluntary prepayments that accelerate paydown on the term loan. Portfolio Multiple
Helix Gen Funding LLC BB- Stable The Ravenswood Generating Station is a 2,000 megawatt (MW) combined power plant located in New York City (NYC; Zone J of the NYISO). The site includes a 248 MW combined-cycle power plant (CCGT), 51 MW of gas turbine peakers, and 1,716 MW of steam turbine generation. The plant has dual–fuel capability to run on oil. The project is 100% owned by funds controlled by LS Power Corp., is ring-fenced, and complies with S&P Global Ratings' definition of a project financing. The stable outlook reflects our view that Helix will continue to generate solid DSCRs for its rating level over the next few years. We continue to expect the project to maintain operations consistent with historical performance and expect DSCRs to average about 2.0x through 2022, with a minimum DSCR of 1.59x in 2020. Single Site with multiple units NYISO Zone J
Compass Power Generation, LLC BB- Stable Compass Power is an independent power producer with three operating assets--the Marcus Hook Energy Center (which has a capacity contract to 2030 and also sells energy into Pennsylvania-Jersey-Maryland [PJM] Interconnection), Dighton (based in ISO-New England [ISO-NE], with a capacity contract through 2021 and merchant energy exposure), and MiIlford (also in ISO-NE, with cleared capacity through 2027). The stable outlook reflects our view that, even in the context of weak power prices and low demand, the project will continue to sweep cash in 2020, remaining aligned to its target debt balance. We expect DSCRs of above 2x through 2024 and a minimum of about 1.3x after 2025, when we model a fully amortizing refinancing profile. Portfolio Multiple
Hamilton Projects Acquiror, LLC BB- Stable Hamilton is a two-asset combined-cycle gas turbine power portfolio with a total of 1,671 megawatts (MW) nameplate capacity based in northeastern Pennsylvania. The Liberty power project in Bradford County has a rated capacity of 763 MW (summer) and 829 MW (winter). Similarly, the Patriot power project in Lycoming County has a rated capacity of 763 MW (summer) and 842 MW (winter). Liberty and Patriot sell the power produced into Pennsylvania-New Jersey-Maryland Interconnection's (PJM) Penelec zone and Pennsylvania Power and Light (PPL) zone, respectively. The stable outlook reflects our expectation of Hamilton producing a debt service coverage ratio of at least 1.4x in all years during the debt tenor. We expect Liberty and Patriot, under new ownership, to maintain high availability and dispatch at capacity factors of 70%-80%. Under the current market condition in PJM, we project realized spark spreads below $10 per MWh over the next 12 months with some recovery over time to the low-teens area. Portfolio PJM-Multiple
LMBE-MC HoldCo II LLC BB- Stable LMBE-MC HoldCo II LLC is a wholly owned project-financed subsidiary of U.S. electricity provider Talen Energy Supply LLC that consists of two merchant power plants that sell energy and capacity into the Pennsylvania-Jersey-Maryland (PJM) market. The project portfolio totals approximately 2.3 gigawatts (GW) of nominal capacity. Lower Mount Bethel is a 600-megawatt (MW) gas-fired combined-cycle facility, while Martins Creek is a 1,700-MW gas-fired peaking facility that can run on oil. While Lower Mount Bethel derives most of its revenues from energy sales in the spot market, the Martins Creek peaking facility derives most of its revenues from the capacity market. The stable outlook reflects our expectation that LMBE's financial performance should remain adequate in 2021 because of the project's energy hedges and the business interruption proceeds that should offset cash flow losses at Martins Creek power plant while it remains out of service. We expect debt service coverage ratios (DSCRs) above 2x until 2025, and a minimum DSCR of about 1.40x in 2026, in which we model a fully amortizing debt structure once the term loan B is refinanced in 2025. Portfolio PJM-Multiple
Calpine Corp. BB- Stable Calpine Corp. is a large U.S. IPP that primarily sells into merchant markets in California, Texas, and the northeast U.S. Calpine has been growing its retail energy sales after acquiring Champion Energy (2015) and Nobel Energy Solutions Americas (2016), and it now serves about 3 million retail customers. The company also owns Calpine Construction Finance Co. L.P. (CCFC), which contracts its power plants to Calpine. Despite merchant exposure, a significant proportion of Calpine's cash flow is currently predictable over the next three years from contracted margins, capacity revenues, and retail revenues. The stable outlook reflects our expectation that performance will remain buoyed through 2020 in ERCOT relative to our assumptions, and California will also witness upside in resource adequacy payments. In our view, financial performance could improve, with downside risk through 2023 contained by the high level of hedging. The outlook factors our expectation that adjusted debt to EBITDA will improve to less than 5x and remain about 4.75x through 2022. Portfolio Multiple
West Deptford Energy Holdings, LLC B+ Negative WDE is a 744-megawatt (MW) combined-cycle natural gas-fired power plant in Gloucester County, N.J. It dispatches into the Eastern Mid-Atlantic Area Council (EMAAC) zone of the PJM Interconnection. The project is owned by LS Power Group (17.8%), Marubeni Corp. (17.5%), Kansai Electric Power Co. Inc. (17.5%), ULLICO Group (14.5%), Arctic Slope Regional Corp. (11.6%), Prudential & Lincoln (11.1%), and Sumitomo Corp. (10%). The negative outlook reflects our view that WDE will dispatch in the 45%-55% area over the next several years while maintaining high availability factors. We forecast a DSCR of 1.16x for 2021, which is also the minimum over the asset's life. We expect DSCRs to improve in 2022 and beyond for the asset's life, ranging from 1.2x-1.4x. We also expect that the project will sweep minimal cash through year-end 2021, increasing thereafter to around $10 million annually. Single Asset PJM - EMAAC
Heritage Power LLC B+ Stable Heritage Power LLC is a portfolio of 16 power plants located across Pennsylvania, Ohio, and New Jersey as well as four different zones in PJM: American Transmission Systems Inc. (ATSI), Mid-Atlantic Area Council (MAAC), Eastern MAAC (EMAAC), and the remaining areas of the regional transmission organization (RTO). The portfolio, which is 100% owned by GenOn Holdings LLC and has a total capacity of about 2.35 gigawatts (GW), utilizes various technologies (e.g., steam turbines and combined cycle gas turbines) designed by various suppliers (e.g., GE,Siemens, and Alstom) and primarily employs natural gas and No. 2 fuel oil. Some plants are dual-fuel capable. The stable outlook reflects our expectation that the project's performance will remain steady with minimal operational outages. We expect average capacity factors of about 20% and 26% for Shawville and New Castle respectively and spark spreads in the $8.0-$9.50 range over the next 12 months. We project DSCRs above 1.5x from 2021, and a minimum of about 1.30x in 2027 during the post-refinancing period due to a large one-off lease payment for Shawville. We expect the project will have about $267 million outstanding at maturity on its term loan B. Portfolio PJM-Multiple
Granite Generation LLC B+ Stable Granite is a U.S.-based independent power producer (IPP) with about 4.8 gigawatts (GW) of capacity in the PJM region. The company's operations consists of 10 natural gas-fired, simple-cycle, and combined-cycle power plants--some with dual-fuel capability--in various LDAs in PJM. Granite's gross margin primarily consists of capacity payments, hedged and unhedged energy margins, and tariff-based ancillary services like reactive power and black start. Granite is 100%-owned, through an intermediary fund, by its financial sponsor, LS Power. The stable outlook reflects our expectation that Granite will have S&P Global Ratings-adjusted debt to EBITDA of about 4.8x in 2020, trending downward to about 4.2x in 2021. These projected credit metrics are partly supported by good visibility of cash flows due to PJM's three-year forward-looking capacity market, hedged energy margin, and a projected debt paydown on the term loan B from excess cash. Portfolio PJM-Multiple
Revere Power LLC B+ Negative Revere Power LLC is a project-financed entity that wholly owns and controls three combined cycle gas plants in New England with a combined winter capacity of 1,143 MW. The portfolio's assets, known as Bridgeport, Tiverton, and Rumford, sell all of their output on a merchant basis within the ISO-NE jurisdiction. Revere's cash flow generation is weighted towards Bridgeport, which we expect will generate roughly 66% of the portfolio's gross energy margin and about 50% of its capacity revenues through 2023. The negative outlook reflects that Revere may underperform and sweep less cash than expected over the next several quarters, which could result in a higher outstanding debt balance and lower DSCRs over the portfolio's useful asset life. We currently expect debt at maturity to be $320 million and a minimum DSCR of 1.18x after refinancing. Portfolio ISO-NE
Lightstone HoldCo LLC B+ Negative Lightstone HoldCo LLC has four power plants totaling 5.3 GWs in the PJM Interconnection power market in the U.S. The projects are Darby Generating Station (480-MW combustion turbine), Lawrenceburg Generating Station (1.224-GW CCGT), Waterford Energy Center (882-MW CCGT) and General James M. Gavin Power Plant (2.691-GW supercritical coal). All plants are in Ohio or Indiana. The projects are merchant and receive capacity and energy revenue. The project has a term loan B and is owned by the Blackstone Group and Arclight Capital Partners. The negative outlook reflects the possibility that we could lower the rating on Lightstone in the near term if the project does not sweep cash on the term loan in 2021 and we continue to see tepid recovery of weak market conditions that leads to debt outstanding at maturity greater than $1.4 billion. At present, we expect DSCRs above 2x during most years prior to maturity, and power and capacity prices that do not decline materially from our current base-case assumptions. We expect the project to pay down at least $400 million on its term loan prior to maturity and a minimum DSCR slightly lower than 1.2x during the refinancing period. Portfolio PJM - AEP
Nautilus Power LLC B+ Stable Nautilus Power LLC has a portfolio of six natural gas-powered generation facilities (CCGT and peaking units) totaling 1.75GW located in New Hampshire, Massachusetts, New Jersey, and Maryland. The stable outlook reflects our view that DSCRs will remain robust in the upcoming 12 months, driven by already secured capacity prices and our expectation that the project will continue to capture high on-peak spark spreads. We expect DSCRs to be in the 1.4x-1.6x range, with a minimum of about 1.2x in the post-refinancing period. Portfolio Multiple
Talen Energy Supply LLC B Credit Watch Negative Talen is an independent power producer with approximately 13 gigawatts (GW) of owned capacity in the PJM, ERCOT, ISO-NE, NYISO, and WECC markets. The company generates and sells electricity, capacity, and related products from a fleet of nuclear, natural gas, and coal power plants in the U.S. The CreditWatch with negative implications reflects our view that Winter Storm Uri, subsequent collateral calls, and elevated liquidity requirements will likely impair Talen and could lead to a lower rating. We believe Talen has sufficient liquidity to meet its requirements, although we expect leverage could remain above our prior expectations of 7x. We expect to resolve the CreditWatch when we have more information from the company. Portfolio Multiple
Kestrel Acquisition LLC B Negative Kestrel Acquisition LLC is the owner of the Hunterstown power plant, an 810-MW combined cycle gas-fired merchant power plant located in the western MAAC zone of the PJM Interconnection. The project has a term loan B and is primarily owned by Platinum Equity Capital Partners IV L.P. The negative outlook reflects the possibility that Kestrel may underperform our base case in the near term by generating weak DSCRs and failing to sweep any cash against its term loan over the next several quarters. We currently expect about $360 million outstanding on the term loan at the point of maturity in mid-2025, resulting in a 1.11x minimum DSCR over the life of the asset. Single Asset PJM- WMAAC
Lonestar II Generation Holdings LLC B Negative Lonestar II's asset portfolio consists of two gas-fired and one coal-fired power plants in the Electric Reliability Council of Texas (ERCOT) market. The project is a subsidiary of funds managed by the Blackstone Group. Bastrop Energy Partners L.P. (Bastrop) is a 552 -megawatt (MW) natural gas-fired facility located in Cedar Creek, Texas. Bastrop is connected to the Kinder Morgan Texas Pipeline and Enterprise Texas Pipeline LLC, and it receives firm gas transportation of up to 75,000 million (mm) Btu per day. The power plant is equipped with two GE 7FA natural gas-fired gas turbines, and a Toshiba DF-408 steam turbine. Paris Generation L.P. (Paris) is a 248 MW gas-fired peaking facility that provides service in Lamar County, Texas. The power plant has been in operation since 1990. It is connected to and receives natural gas from the Natural Gas Pipeline Co. of America, an interstate pipeline system owned by Kinder Morgan. Paris uses two GE 7EA gas turbines and a GE SAC-STAG steam turbine. GE and Toshiba turbines deployed by the two power plants have a proven track record with operational data for several decades. Major Oak Power LLC (Twin Oaks) is a 308 MW coal-fired baseload power plant in Robertson County, Texas.It is equipped with two circulating fluidized bed boilers and two steam turbines. Adjacent to the power plant is an open-pit coal mine, Walnut Creek, which provides at-cost coal to the plant and is a part of the collateral package. The negative outlook reflects refinancing risk stemming from lower than previously expected excess cash sweeps, given soft power prices in ERCOT. We now expect an outstanding term loan B balance of about $200 million by maturity in March 2026 and PLCR of 1.2x. Portfolio ERCOT
Hummel Station LLC CCC+ Credit Watch Negative Hummel Station LLC is an approximately 1,124-MW combined-cycle, natural gas-fired power plant to be built near Snyder, Pa. The plant dispatches into the PJM Interconnection market, selling capacity, energy, and ancillary services. The CreditWatch placement with developing implications reflects the possibility of higher or lower rating on Hummel's senior secured term loan B in the short term, depending on the project's capital structure and credit metrics after the ownership change. Single Asset PJM- WMAAC
Panda Stonewall LLC CCC+ Developing Stonewall (formerly known as Green Energy Partners) is an approximately 778-MW combined-cycle, natural gas-fired power plant near Leesburg, Va. The project dispatches into the PJM Interconnection market, selling capacity, energy, and ancillary services. The developing outlook reflects the possibility for multiple rating paths over the next several months. We could raise the rating if Stonewall successfully refinances its outstanding debt on acceptable terms, such that we believe the project's capital structure is sustainable over the long term. If Stonewall does not announce a credible refinancing plan over the next few months, we will likely lower the rating again. Single Asset PJM-Dominion
Terra-Gen Finance Co. LLC CCC+ Positive Terra-Gen develops, owns, and operates renewable energy projects including wind, geothermal, and solar generation. The 900-megawatt (MW) portfolio comprises 608 MW of wind capacity, 160 MW of solar capacity, 71 MW of geothermal, and 60 MW of battery storage. The positive outlook reflects our belief that we could raise the rating depending when Terra-Gen successfully refinances its December 2021 term loan and if it maintains generally consistent operating performance. Portfolio Multiple
Sandy Creek Energy Associates L.P. CCC- Negative U.S. power generator Sandy Creek Energy Associates L.P. owns 604 MW (64%) of the 945-MW Sandy Creek coal-fired generating plant in Riesel, Texas. Of the 604 MW, 259 is under 30-year PPAs with creditworthy Texas wholesale power providers Brazos Electric Cooperative (155 MW; 26%) and the Lower Colorado River Authority (104 MW; 17%). The remaining 345 MW is partly hedged under short-term agreements, with coal contracted as well. The negative outlook reflects the risk that the project is likely to default on its debt obligations or pursue in or out of court restructuring within six months without unforeseen positive developments. Single Asset ERCOT
Source: S&P Global Ratings.

This report does not constitute a rating action.

Primary Credit Analyst:Kimberly E Yarborough, CFA, New York + 1 (212) 438 1089;
kimberly.yarborough@spglobal.com
Secondary Contacts:Aneesh Prabhu, CFA, FRM, New York + 1 (212) 438 1285;
aneesh.prabhu@spglobal.com
Jason Starrett, New York + 1 (212) 438 2127;
jason.starrett@spglobal.com
Luqman Ali, CFA, Toronto + 1 (416) 5072589;
luqman.ali@spglobal.com
Research Assistant:Zachary S Fiore, New York
Analytical Group Contact:Simon G White, New York + 1 (212) 438 7551;
Simon.White@spglobal.com

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