Dec 21 - Fitch Ratings has downgraded the Issuer Default Rating (IDR) of
Ameren Energy Generating Company (Genco) to 'B-' from 'BB-' and the senior
unsecured debt ratings to 'B+/RR2' from 'BB-'. The Rating Outlook is Negative.
Fitch's rating action follows the announcement by Ameren Corp. (AEE), Genco's
parent holding company, that it intends to exit the merchant generation
business, based on an evaluation of Genco's current and projected financial
The revised ratings also reflect AEE's plan to reduce and ultimately eliminate
Genco's reliance on AEE's financial support and shared services support. AEE
expects to record in the fourth quarter of 2012 (4Q'12) a pre-tax non-cash
impairment consolidated charge in the range of $1.5 billion to $2 billion, while
Genco's expected charge is in the range of $50 million to $300 million. AEE and
utility subsidiaries' credit ratings are unaffected by today's announcement.
Approximately $825 million of debt is affected by today's rating actions.
Genco's ratings no longer benefit from AEE's ownership and financial support.
Sustained weakness in wholesale power markets and demand have eroded Genco's
profit margins and suppressed cash flow profitability over recent years. Going
forward, Fitch expects AEE's business strategy to focus on its core regulated
utility subsidiaries that management believes offer the most attractive returns.
Fitch expects Genco's cash flow and credit metrics will continue to weaken over
the forecast period. Fitch expects funds from operations (FFO)/interest to
approximate 2.0x and FFO/debt, 8% over 2013-2015. The downtrend is driven by
lower priced hedges and low forward power prices in the Midwest region where
Genco operates its largely coal-fired merchant generating fleet.
Genco has adequate near-term liquidity with access to AEE's non-regulated money
pool and the ability to exercise, if needed, a put option agreement entered into
with an affiliate that allows Genco to sell certain assets for the greater of
$100 million or asset fair value. The put option is guaranteed by AEE, and
management has indicated it is likely that Genco will exercise the option.. As
of Sept. 30, 2012, Genco had $25 million of cash on hand.
Favorably, Genco has no near-term maturities. The next maturity is in 2018 with
$300 million due; $250 million is due in 2020, and $275 million in 2032. AEE
has indicated it will not provide support to Genco to meet its debt obligations.
Genco has modest capital requirements over the next three years. Capital
expenditures are expected to approximate $180 million over 2013-2015 and Fitch
expects capex to be largely financed with internally generated funds.
The Negative Outlook reflects Fitch's expectations that the sustained low power
price environment will continue to depress Genco's profit margins as existing
above-market hedge contracts expire.
The unsecured debt ratings are notched above or below the IDR, as a result of
the relative recovery prospects in a hypothetical default scenario. Fitch
values the power generation assets that support the entity level debt using a
net present value analysis. The generation asset net present values vary
significantly based on future gas price assumptions and other variables, such as
the discount rate and heat rate forecasts.
For the net present valuation of generation assets used in Fitch's recovery
valuation case, Fitch uses the plant valuation provided by its third-party power
market consultant, Wood Mackenzie, as an input as well as Fitch's own gas price
deck and other assumptions.
The 'RR2' senior unsecured debt recovery rating indicates superior recovery
prospects given default. 'RR2' rated securities have characteristics consistent
with securities historically recovering 71%-90% of current principal and related
WHAT COULD TRIGGER A RATING ACTION:
--Positive rating action is not contemplated at this time.
--Sustained Deterioration In Power Prices: A significant worsening of the
commodity environment could drive further downgrades.
--Liquidity Strain: An unexpected rise in capital spending to meet environmental
requirements could further pressure Genco's credit metrics and affect the
Fitch has downgraded the following rating with a Negative Outlook:
Ameren Energy Generating Company
--IDR to 'B-' from 'BB-';
--Senior unsecured debt to 'B+/RR2' from 'BB-'.