S&P jolts Parkway Generation loan rating

S&P said it lowered its rating on Parkway Generation LLC’s senior secured loans to B+ from BB and removed it from CreditWatch where it was placed with negative implications on Feb. 2. The 1 recovery rating on the debt is unchanged and indicates substantial (90%-100%; rounded estimate: 90%) recovery in a default scenario. The outlook is now stable.

The Pennsylvania-New Jersey-Maryland Interconnection (PJM) assessed $151 million in penalties and a bonus, which has lessened Parkway Generation's ability to sweep against its term loan B, the agency said.

“In our base-case scenario, we assume Parkway will pay a total of $100 million in net penalties, on the basis that it is able to recuperate $41 million of the approximately $90 million that is being contested with the Federal Energy Regulatory Commission. We also view the project as generating sufficient cash flows to absorb the additional $41 million of penalties if it is unsuccessful in contesting those amounts, by deferring some of its capital expenditures (capex),” S&P said in a press release.

The revised outlook reflects a forecast that the project will maintain debt-service coverage ratios of at least 1.1x for the life of the assets. “We expect the project will have about $790 million outstanding on its TLB at maturity in February 2029, compared with the $660 million we expected before the $141 million net penalty, of which we expect $41 million to be successfully contested,” the agency said.

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