S&P gives BB to Vistra P-Caps

S&P said it gave a BB rating to Vistra Corp.’s planned sale of up to $750 million of pre-capitalized securities (P-caps) due in 2028 to be issued by its newly established Palomino Funding Trust I.

“We assigned our BBB- rating to the proposed offering, which is in line with the rating on the senior secured notes issued by Vistra's wholly owned subsidiary, Vistra Operations Co. LLC (Vistra Operations). This is because we consider the p-caps credit quality ultimately linked to Vistra's senior secured debt as Vistra would be obligated to issue a senior secured note if the treasuries are not returned to the trust,” S&P said in a statement.

The agency also revised the recovery rating on Vistra's senior unsecured debt to 4 from 3, which indicates average (30%-50%; rounded estimate: 40%) recovery in a hypothetical default. S&P said it assumes a portion of the P-caps would be replaced by senior secured notes in a default scenario. The BB issuer and senior unsecured debt ratings remain unchanged.

The 1 recovery rating on Vistra's senior secured debt is unchanged, indicating very high (90%-100%; rounded estimate: 95%) recovery in default. The BBB- rating on the senior secured debt is unchanged.

The proceeds will be used to buy U.S. Treasury securities that can be posted as collateral for hedging needs.

The outlook is stable.

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