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Rating Action:

Moody's Downgrades NRG Yield to Ba2

06 Oct 2015

Approximately $500 million of rated debt affected

New York, October 06, 2015 -- Moody's Investors Service, ("Moody's") today downgraded NRG Yield, Inc's (NYLD) corporate family rating (CFR) and senior unsecured rating to Ba2 from Ba1 and probability of default rating (PD) to Ba2-PD from Ba1-PD. The rating outlook is stable. The downgrade primarily reflects the lack of access to the equity markets due to a large decline (~30%) in its stock price in recent months. The inability to issue equity creates uncertainty regarding the company's financial strategy going forward. The downgrade also considers the higher than expected cash flow volatility from its portfolio in first half of 2015 driven by a major outage at one of its natural gas generation facilities and the low wind generation resources in the first half of 2015.

This rating action concludes the review of NYLD's ratings initiated on 24 September 2015.

RATING RATIONALE

NYLD's Ba2 CFR and Ba2 senior unsecured ratings reflect the recently volatile cash generation of its power project portfolio that we expect to stabilize in 2016, high debt leverage, and the uncertainty over its financial strategy created by the ongoing lack of access to the equity market.

Despite these adverse developments, we view all three segments of NYLD's portfolio: renewable, gas and thermal, as having a low business risk profile. Cash flow diversity is strong, with slightly more than half coming from renewable projects. However, there is geographic concentration, with about 70% of cash flow being generated from projects in California.

The debt leverage to cash flow is high. We project the consolidated debt to EBITDA to be in the low 6x range while CFO Pre-WC/debt will be slightly above 10% in 2016. Full year results for 2015 are likely to be significantly worse, however, with consolidated debt to EBITDA at around 8x and CFO Pre-WC/debt between 7% and 8%, largely due to a gas plant outage and low wind conditions in California.

Due to the dramatic fall in the stock price of NYLD as well other yieldcos, NYLD currently does not have access to the capital markets in order to issue more equity. We view this as a credit negative development because, without access to the equity market, the yieldco will not function as it is designed. As a result, the management may be motivated to modify its financial strategy to enhance shareholder value, which could have an adverse effect on the credit quality of the rated bonds.

Liquidity

NYLD has good liquidity, as reflected in its SGL-2 speculative grade liquidity rating. It has a modest amount of capital expenditures over the near term and is expected to generate strong free cash flow in 2016, which we estimate to be more than $100 million.

As of 30 June 2015, the company had $281 million of cash on hand and a $495 million revolving credit facility with $196 million unused. The unused portion of the credit facility is likely to have increased by $190 million in July 2015 when the company received proceeds from the issuance of 2020 convertible notes and the Class C common stock, both completed on 29 June 2015.

If the equity markets continue to be inaccessible, NYLD is likely to use cash on hand and its revolving credit facility to fund acquisitions or additional asset drop downs from NRG, the key reason its speculative grade liquidity rating was downgraded to SGL-2 from SGL-1 on 24 September 2015. We expect NYLD to have enough liquidity to fund drop downs to 2018 while maintaining its dividend growth guidance of 15% per annum.

Outlook

NYLD's stable outlook reflects its projected stable cash flow and the diversity among individual projects. NYLD plans to continue with its asset acquisition strategy with or with access to the equity markets. The stable outlook incorporates our expectation that NYLD will finance these acquisitions in a way that does not significantly increase leverage or worsen liquidity.

What could change the rating up

An upgrade is unlikely given the uncertainty created by the volatile equity market and limited upside to cash flow.

What could change the rating down

A negative rating action could occur should the company's consolidated debt to EBITDA metric be sustained at above 7.5x, or if CFO Pre-W/C to debt remains in the single digits or worse, or if the cash flow from its projects proves to be more volatile than our expectations. A downgrade can also occur should the company modify its financing strategy in a way that hurts credit quality, such as by using additional leverage to finance growth.

The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Toby Shea
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Downgrades NRG Yield to Ba2
No Related Data.
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