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Moody's downgrades Essential Power
Moody's Investors Service said it downgraded Essential Power LLC's first-lien senior secured facilities to Ba3 from Ba2 and second-lien secured notes to B1 and Ba3 and placed the ratings under review for possible further downgrade.
The agency said the rating action reflects Essential Power's tightening financial metrics due to the substantial loss crystallized from Heat Rate Call Options at the Newington plant and the subsequent shift in the plant's operating profile effectively to fully merchant as the options have been crystallized with offsetting positions.
The rating action also takes into account continued New England gas supply challenges, the borrower's decreasing liquidity profile and the tightening covenant cushion in light of the option settlements through 2016, Moody's said.
Over the course of the review period, Moody's intends to gain greater clarity about the company's strategy to execute replacement hedges over the 2014 budget and intermediate term multi-year period as the portfolio's future earnings stream shifts from a highly contracted and hedged cash flow profile to one characterized by greater exposure to merchant energy markets at its two largest plants.
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