Moody’s gives Lackawanna loans Ba3

Moody’s Investors Service said it assigned a Ba3 rating to Lackawanna Energy Center LLC's (LEC) $730 million six-year senior secured term loan B facility that includes a $350 million fixed-rate tranche and a $380 million floating-rate tranche, in addition to LEC's $95 million six-year term loan C facility and $120 million five-year senior secured revolving credit facility. The outlook is stable.

LEC is expected to use the proceeds to repay senior secured debt, holding company debt, fund reserves, and pay transaction expenses. The revolver will be used to refinance credit facility balances and provide general liquidity. The term loan C facility will separately back a six-month debt service reserve.

“The Ba3 rating assignment reflects the project's the strong competitive position in PJM, demonstrated by attractively priced fuel from the Marcellus/Utica gas supply and its high efficiency as a combined cycle plant using General Electric International, Inc.'s (GE) new 7HA.02 technology with heat rates below 6,500 Btu/kWh.

“Further supporting the project's credit profile is a long-term service agreement (LTSA) with GE, highly experienced sponsors in Invenergy Thermal Operating II and Global Energy & Power Infrastructure Fund II, LP (a BlackRock infrastructure fund), and an experienced operator in Invenergy Services Thermal US LLC. The project also has typical project finance features that provide lender protections,” Moody’s said in a statement.

However, the rating also considers asset operating risk, refinancing risk and merchant risk. “Merchant risk represents the greatest risk driver to the project, especially given the recent reduction in forward price curves from the higher prices and forward curves seen throughout 2022. Prices are still moderately elevated compared to 2019 and 2020 levels and strong demand for electricity drive our expectations for adequate energy margins over the next couple of years,” the agency explained.

The stable outlook mirrors the view LEC will demonstrate healthy operating performance, as well as engage and maintain solid energy margins, resulting in sustained debt service credit ratio levels above 1.5x, Moody’s said.

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