S&P affirms Homer City

Standard & Poor's said it affirmed Homer City Funding LLC's BB $875 million senior secured bonds following its annual review of the company. The outlook is stable.

The agency said that while ratings on Homer City primarily reflect its standalone credit quality, S&P continues to link the company's ratings to controlling parent, Edison Mission Energy. Typically, a wholly owned subsidiary is not rated higher than its 100% owner. In this case, because of perceived strong economic incentives that would discourage Edison Mission Energy from harming Homer City in the event of credit deterioration or filing the entity for bankruptcy protection, the agency said it delinked the ratings.

S&P said the ratings reflect Homer City's ownership by a lower-rated entity, lack of long-term offtake contracts, exposure to nitrogen oxides and sulfur dioxide emissions compliance costs and the possibility that Homer City may be required to issue additional debt for environmental capital expenditures over the next several years.

The ratings are supported by the fact that failure to make lease-equity payments will not result in an acceleration or default on the senior bonds, low coal fuel supply risk, a lease structure that reduces the company's ability to issue additional debt and provides a six-month debt service reserve fund, good operations and maintenance functions and low technology risk, the agency said.

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