S&P assigns BB- to Lackawanna loans

S&P said it preliminarily assigned BB- issue and 2 recovery ratings to Lackawanna Energy Center LLC’s planned $730 million term loan B (TLB), $95 million term loan C (TLC), and $120 million revolving credit facility. The preliminary 2 recovery rating indicates substantial (70%-90%; rounded estimate: 75%) recovery if the issuer defaults. The TLB facility will be split between a $350 million TLB-1 tranche and $380 million floating rate TLB-2 tranche. The outlook is stable.

“LEC operates under a gas netback agreement (GNA) with Coterra Energy Inc. that provides up to 210,000 dekatherms per day under a firm supply agreement through December 2029. We consider this type of hedge to be credit supportive because it provides a degree of margin protection against falling power prices,” the agency said in a press release.

However, it is a single asset, stand-alone plant in a geographic area subject to price volatility though the risk is somewhat offset by its GNA, S&P said.

LEC will use the proceeds to refinance its debt that was used to fund the construction and initial operations of the project and to pay transaction-related expenses.

“The stable outlook reflects our expectation of high levels of availability and dispatch, as well as spark spreads in the low-to-mid teens over the next few years. Based on these assumptions, we project a total TLB balance of about $460 million at maturity in 2029,” S&P said.

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