S&P may cut Tenaska

Standard & Poor's said it placed the BBB- rating on Tenaska Washington Partners LP's $189 million first mortgage bonds due 2011 on CreditWatch with negative implications to reflect the potential rating trend for Puget Sound Energy Inc. (BBB-/Watch negative/A-3), the sole purchaser of its electricity.

The rating reflects the BBB- rating of parent Puget Energy Inc., which is on CreditWatch negative due to a potential buyout by a group of private investors led by Macquarie Infrastructure Partners, an affiliate of Macquarie Bank Ltd. (A/stable/A-1).

S&P said Tenaska's rating depends on its parent's rating unless Tenaska can perform better financially on its own. The agency said it assessed Tenaska's potential standalone creditworthiness and concluded that if the project operated as a merchant plant, current market conditions would result in significantly lower financial performance and coverage ratios.

The BBB- rating reflects weak cash traps and the power purchase agreement, which is an out-of-market contract for Puget Sound, the agency said.

Offsetting the risks are the project's strong cash flows, S&P said.

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