S&P ups AES Red Oak notes

Standard & Poor's said it raised its debt rating on AES Red Oak LLC's $356 million senior secured notes to BB- from B+.

The agency said it also assigned the senior secured bonds a recovery rating of 2, indicating the expectation of substantial recovery in the event of a payment default.

The rating action on Red Oak's debt reflects the application of S&P's enhanced recovery rating scale and issue rating framework and does not reflect a change in its opinion of the company's default risk as reflected by the corporate credit rating.

According to the agency, AES Red Oak's ratings reflect a historically low debt service coverage ratio, a continuing dispute with a counterparty and merchant risk during the last eight years of the bond term while these weaknesses are mitigated by a 20-year power purchase agreement that mitigates market exposure.

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