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Rating Action:

Moody's assigns Ba2 to Invenergy Thermal Operating I LLC's new senior secured credit facilities; outlook stable

12 Jun 2018

Approximately $415 million of new credit facilities affected

New York, June 12, 2018 -- Moody's Investors Service, ("Moody's") has assigned a Ba2 rating to Invenergy Thermal Operating I LLC's (the "Borrower") $415 million senior secured credit facilities. The facilities consist of a $350 million senior secured term loan B due 2025 and a $65 million revolving credit facility due 2023. Concurrent with this rating action, Moody's affirmed the B1 rating on the currently outstanding $310 million term loan B due 2022 and the existing $70 million revolving credit facility due 2020. Invenergy's rating outlook is revised to stable from negative.

Proceeds from the financing along with an equity capital infusion from the Sponsor will be used to fully repay the $204.7 million outstanding second lien debt, as well as refinance the outstanding $310 million senior secured term loan B due in 2022 and a $70 million senior secured revolving credit facility due 2020 as well as to pay transaction fees and expenses. Additionally, the existing Grays Harbor operating company level debt, a new addition to the portfolio, will be fully repaid at financial close. The Sponsor will not be taking a distribution as part of this transaction, and instead will be refinancing the existing debt and extending its maturity. Once the new financing closes, Moody's will withdraw the B1 ratings on the existing debt.

RATINGS RATIONALE

The Ba2 rating reflects the significant portfolio deleveraging by more than $200 million through the elimination of the high cost second lien debt, a less costly refinanced capital structure enabling a reduction of more than $10 million in annual interest expense or almost one third of total annual debt service, and the addition of the 620 MW Grays Harbor combined cycle natural gas power plant, located in WA, which adds to the portfolio's diversity and strengthens the collateral package.

The Ba2 rating factors in the benefits from the new 50/50 partnership of Invenergy Clean Power LLC and AMP Capital's Global Infrastructure Equity Platform, who will provide $200 million of equity capital for debt retirement at the Borrower. The rating further incorporates the improved financial performance at both the Nelson and Ector plants, with Nelson benefiting from sustainable higher dispatch rates following transmission upgrades, along with the recent strong capacity auction results, while Ector's near-term performance is aided by the plant entering into a Heat Rate Call Option through 2022.

The Grays Harbor plant, an addition to the Borrower's portfolio, is party to a power purchase agreement (PPA) with Shell Energy North America (US), L.P. (SENA: A3 stable) which expires in December 2019. The project has generated around $7 million of annual EBITDA over the past four years. Given its location in the Pacific Northwest, a region with substantial hydro and renewable capacity along with regional excess capacity, its cash flows are expected to be impacted by the highly volatile energy market in the region, if it becomes merchant. We recognize that there are coal generation closures expected to happen within the current financing's horizon, including 1.34 GW's from the Centralia power plant which could benefit the project in the medium term. Given the uncertainties surrounding the market structure beyond 2019, we assume that Grays Harbor renews its existing PPA with SENA, and generates similar levels of cash flows throughout the remaining debt period, which represents close to 10% of total CFADS over the debt life.

The rating also incorporates the fact that the portfolio of generating assets relies heavily on merchant-based cash flows derived from Nelson, a combined cycle plant in northern Illinois for around 30% of CFADS, whose recent performance has been aided by transmission upgrades and who benefits from the receipt of PJM capacity auction revenue.

We further acknowledge that over 30% of CFADS will come from four contracted assets, each of which are encumbered and subject to a 1.20x debt service coverage ratio (DSCR) distribution test. All projects have reasonable cushions with respect to meeting such tests with the exception of Hardee, a combined cycle gas power plant in Florida, whose DSCR is anticipated to be around 1.20x through the forecasted period owing to leverage and somewhat lower dispatch than originally anticipated. Although the lack of distributions from Hardee is a credit negative, Hardee is the smallest contributor to consolidated CFADS, at around 2.5% of total. We observe that Hardee had a generator step-up unit (GSU) failure in late June 2017 which is not anticipated to be back online until July of 2018.The project has received insurance proceeds of around $6 million in the first part of 2018, and has also been utilizing a spare on site GSU to remain operational, although it is not sufficient to support one of the simple cycle units which has remained offline. While cash flows have not significantly been impacted over this period, there were no distributions from Hardee in FY 2017 or anticipated in the first half of 2018.

Invenergy's CFADS for FY 2017 was around $52 million, as anticipated. We expect CFADS to average around $70 million in FY 2018-2021, benefitting from Nelson's improvement in operations as well as higher known capacity prices for the period. Under our case, we expect FFO / Debt to approximate 15% and the DSCR to average around 1.70x over the next few years. We further assume that during the 2022-2025 period, CFADS should be slightly lower, in the $65 million range given our lower capacity price assumptions for the period. Under our case, we expect approximately $166 million in cash flow repayment during the 2018-2025 period based upon sensitivities examined. We note however the change in the required cash flow sweep to 75% relative to the 100% sweep in the existing deal. The reduction in cash sweep is partially mitigated by the lower level of debt at financial close and the fact that no distribution is being taken in association with the transaction. The sweep feature further steps down to 50% in the event the leverage ratio (Net Debt of Borrower/ consolidated CFADS) drops to below 4.0x, and to 25% when the ratio is < 2.0x. Under our case, we expect that less than $160 million of the term loan debt will remain outstanding at maturity.

The security package will remain the same as the existing structure, with the exception of adding a first lien pledge of the stock of Grays Harbor (similar to the pledge of stock in Nelson and Ector). No other changes from the existing financial structure are included, including maintaining permitted quarterly distributions subject to a 1.2x DSCR distribution test and a six month debt service reserve requirement, and no ability to incur additional debt, with the exception of refinancing transactions at the opco level, and typical change of control provisions. There will be permitted asset sales with target minimum levels for both Ector and Grays Harbor. In the case of Ector, the target level is set at $75 million, or $25 million lower than what exists in the existing structure, while in the case of Grays Harbor, the target is set at $100 million. Given the reduced total leverage, and also Ector's more limited contribution to total cash flows, we do not consider this change to be significantly credit negative.

RATING OUTLOOK

The outlook is stable given the sizeable debt reduction, continued improvement in Nelson's financial performance and the expectation that Hardee's recent operating difficulties will stabilize in the second half of the year allowing it to generate excess cash flows for distributions.

WHAT COULD CHANGE THE RATING UP

The rating could be upgraded if there is significantly higher cash flow generation than anticipated on a sustained basis, in particular from Nelson, resulting in greater debt repayment and stronger credit metrics such as > 2.5x DSCR and > 20% FFO/debt on a sustained basis.

WHAT COULD CHANGE THE RATING DOWN

The rating could be downgraded if cash flow generation is lower than currently forecasted, in particular for the Nelson plant, leading to weaker credit metrics of <1.50x DSCR or <15% FFO/Debt, or if there are significant operating issues at any of the projects leading to an inability to generate and distribute excess cash flows to the Borrower.

In May 2018, AMP Capital's Global Infrastructure Equity Platform and Invenergy Clean Power LLC announced a 50/50 partnership named Invenergy AMPCI Thermal Energy LLC (the "Sponsor"), which will wholly own the Borrower and other natural gas generation projects. The Sponsor in turn owns 100% of Invenergy Thermal Operating I LLC, the Borrower, which holds interests in a portfolio of seven operating natural gas-fired plants located throughout the United States and Canada. Four of the projects are wholly owned (St. Clair, Nelson, Ector and Grays Harbor) while the other three (Cannon Falls, Spindle Hill and Hardee) are owned 51% by the Sponsor. The gross capacity of each plant ranges from 330 MW to 620 MW and the net capacity of the portfolio is 2,680 MW. Five of the plants (Cannon Falls, Spindle Hill, Hardee, St. Clair and Grays Harbor) have been operating for several years. The portfolio has a weighted average contract life of about 7 years.

The current capital structure includes a first lien term loan ($310 million outstanding), a second lien term loan ($204.7 million outstanding), and a first lien working capital facility (sized up to $70 million with $18 million currently undrawn). In addition, there is a total of about $356 million of project level debt attributable to Invenergy at the St. Clair, Hardee, Cannon Falls, and Spindle Hill projects. Once the planned refinancing closes, Invenergy will have a $350 million term loan and a $65 million revolving credit facility, and $356 million of Invenergy attributable project level indebtedness.

The principal methodology used in these ratings was Power Generation Projects published in May 2017. Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Jennifer Chang
VP - Senior Analyst
Project Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

A.J. Sabatelle
Associate Managing Director
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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