Moody’s drops Talen Energy debt; rates loan Ba1, notes B1

Moody's Investors Service said it downgraded roughly $823 million of Talen Energy Supply, LLC's senior unsecured guaranteed debt, including about $592 million of notes due in 2025, and about $231 million of tax-exempt revenue bonds to B1 from Ba3.

At the same time, the agency affirmed the company’s B1 corporate family rating, B1-PD probability of default, Ba1 senior secured rating and B3 rating on its senior unsecured nonguaranteed debt.

The speculative grade liquidity rating was affirmed at SGL-2 and the outlook remains stable.

Moody’s said the action is a result of Talen's announced liability management program, which includes a plan to prepay about $900 million of unsecured nonguaranteed debt maturing in 2018, 2019 and 2021 with proceeds from a new $400 million seven-year senior secured term loan and roughly $500 million of new five-year unsecured guaranteed notes.

Concurrent with this action, Moody's assigned a Ba1 rating to the proposed senior secured term loan and a B1 rating to the proposed guaranteed notes.

The downgrade of the senior unsecured guaranteed notes is driven by a shift in Talen's capitalization structure, which will now include a larger percentage of higher ranking senior secured debt and a smaller portion of lower ranking senior unsecured nonguaranteed debt, the agency explained. Upon closing of the proposed financing, Moody’s said the guaranteed notes will make up the preponderance of Talen's recourse debt, and the rating on these issues will be the same as its B1 corporate family rating.

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