Revere Power LLC Debt Rated 'BB-'; Outlook Stable

  • Revere Power LLC has issued a seven-year $445 million term loan B, a $70 million term loan C, and a $55 million revolving credit facility to finance its acquisition of three combined cycle gas plants in New England. The three gas plants (Bridgeport Energy LLC in Connecticut, Tiverton Power LLC in Rhode Island, and Rumford Power LLC in Maine) were purchased from Emera and have a combined nameplate capacity of about 1,143 megawatts (MW).
  • The project has substantial market risk considering that all three plants sell energy, capacity, and ancillary services on a fully merchant basis. It lacks both revenue contracts and hedges that some peers use to lock in forward prices.
  • We are assigning our 'BB-' rating and '2' recovery rating (rounded estimate: 75%) to Revere's term loan B due in 2026, term loan C due in 2026, and revolving credit facility due in 2024.
  • The stable outlook reflects our expectation that the project's capacity factor will remain in line with historical performance, while spark spreads across the portfolio remain $12 per Megawatt hour (MWh) - $14/MWh over the next few years. Under our base-case forecast, we expect debt service coverage ratios (DSCRs) to remain above 1.6x for the next few years with the minimum over the life of the term loan of 1.42x in 2023.
NEW YORK (S&P Global Ratings) April 18, 2019--S&P Global Ratings today took the rating actions listed above. Revere recently raised a $445 million term loan B, a $70 million term loan C, and a $55 million revolving credit facility to finance the purchase of Bridgeport, Tiverton, and Rumford. The $70 million term loan C, which was lowered from $86 million during financing due to reduced credit support requirements related to the long term service agreement (LTSA) at Bridgeport, is cash-funded and provides collateral via letters of credit for several key contracts and a six-month debt service reserve account (DSRA). The term loan B, term loan C, and revolving credit facility are pari passu senior secured debt. The project is owned by Cogentrix Reserve Holdings, which is wholly owned by funds managed by the Carlyle Group. While we consider Carlyle a financial sponsor, the project is delinked from the parent due to separateness provisions that are standard for similar project financings, which in this case include a non-consolidation opinion.
The stable outlook is based on our expectation of sound operational performance that ultimately leads to an average annual capacity factor of about 55% across the portfolio while spark spreads remain around $12/MWh - $14/MWh annually over the next few years, although we expect both measures to fluctuate seasonally. The rating is based on our minimum forecast DSCR of 1.42x in 2023.
We could lower the rating if the project can't maintain a minimum DSCR of 1.3x on a forward-looking basis. This could stem from the deterioration of energy margins, possibly caused by lower power demand or continued low commodity prices. We could also revise the outlook or lower the rating if unexpected operational issues require an extensive unforced outage or if liquidity becomes strained. We could also consider a lower rating if we believe that Revere no longer compares well to peers at the current rating or if the evolving regulatory landscape impairs the competitive position of fossil fuel plants in New England.
While unlikely in the near term, we could raise the rating if we expect the project to maintain a minimum base-case DSCR above 1.75x, including during the post-refinancing period. This could stem from secular improvement in power and capacity prices in ISO-NE. We could also consider a higher rating if the project significantly deleverages or if its downside resilience improves, which would likely be the result of greater liquidity.
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