Panoche Energy Center LLC Bond Rating Lowered To 'B' And Remains On CreditWatch Negative After PG&E Co. Rating Action


  • California-based power project Panoche Energy Center LLC (PEC) sells all of its output to utility Pacific Gas & Electric Co. (PG&E) under a long-term power purchase agreement (PPA).
  • We lowered the ratings on PG&E on Jan. 7, 2019, following the announcement from the board of directors that it is reviewing PG&E's management, finances, governance and structural options. The PG&E ratings remain on CreditWatch with negative implications because of the souring political and regulatory environment and our view of the limited options that the company has to effectively manage its operating, financial, and regulatory risks.
  • Given the complete reliance on PG&E for all its revenues under its power contract, we are lowering our rating on PEC's $321 million senior secured bonds due July 31, 2029 to 'B' from 'BB'. The rating remains on CreditWatch negative.
  • The CreditWatch Negative listing reflects the possibility that further downgrades on utility PG&E will trigger a change in the rating on the notes of PEC.
  • The recovery score has decreased to '3' (rounded estimate: 60%), as we now assume the most likely path to default would result from a bankruptcy of PG&E.
SAN FRANCISCO (S&P Global Ratings) Jan. 11, 2019--S&P Global Ratings today 
took the rating actions listed above. PEC is a 400-megawatt gas-fired 
simple-cycle power plant in Panoche, Calif., about 50 miles west of Fresno. 
The project started commercial operations in 2009. PEC is owned by funds 
managed by Ares EIF Management LLC (not rated). PEC earns its revenue through 
a long-term PPA with PG&E (B/Watch Neg). Day-to-day operations and maintenance 
are contracted out to NAES Corp. (not rated). A contractual services agreement 
with GE Energy, an affiliate of General Electric Co. (BBB+/Stable/A-2), covers 
major maintenance.

The CreditWatch with negative implications listing on PEC mirrors the listing 
on PG&E. Given that the project's rating is now capped by the senior secured 
rating of PG&E, further rating declines of PG&E would likely result in 
lockstep reductions in the credit rating of Panoche.
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