Fitch Publishes U.S. Competitive Generators Handbook

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has published its third U.S. Utilities, Power & Gas handbook, which provides an overview of the competitive power generation landscape in the U.S. and profiles the generation companies (gencos) in Fitch's rated universe. Each company report in this handbook includes rating rationales and rating drivers, along with debt structures and financial summary information.

The genco sector comprises both affiliates of regulated utilities (affiliated gencos) and independent power producers (IPPs). The affiliated gencos typically operate within a larger holding company structure and generally boast strong investment-grade credit metrics, such as PSEG Power LLC ('BBB+'), Southern Power Co. ('BBB+'), and Exelon Generation Co. LLC (Exgen, 'BBB'). IPPs such as Calpine Corporation (Calpine, 'B+') are viewed as riskier and typically rated below investment grade.

Fitch continues to have a negative outlook for the competitive generation sector, reflecting poor sector fundamentals that include weak electricity demand, robust reserve margins in most nonregulated markets and low power prices. In addition, the rapid expansion of renewables, driven by state mandates and federal policy initiatives, will intensify pressure on heat rates and power prices in many regions. The reliability-driven enhancement to the capacity constructs in the PJM Interconnection (PJM) and ISO New England (ISO-NE) markets is a positive.

Given the sharp drop in power prices since last year and no material recovery in sight, Fitch's primary concerns revolve around the commodity exposure for gencos once the current above-market hedges expire. The waning liquidity in forward markets and, in many cases, management's robust proprietary views have led to many gencos hedging below ratable levels. Ownership of a competitive retail business (which is typically countercyclical to wholesale generation), a track record of long-term bilateral contracts and visibility on capacity revenues can provide favorable offsets.

With most gencos operating toward the upper end of targeted leverage metrics, there is limited headroom to withstand a deepening cyclical trough. On the positive side, free cash flow and liquidity are robust and debt maturities are manageable. Some IPPs have used the upswing in the commodity cycle and accommodative capital markets to raise senior unsecured debt, thus gaining flexibility in their capital structure. Given depressed equity valuations, aggressive return of capital to shareholders is a key credit risk.

The report is available on the Fitch web site at 'www.fitchratings.com' or by clicking on the link.

Additional information is available on www.fitchratings.com

U.S. Competitive Generators Handbook (A Detailed Review of Competitive Generation Companies)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872124

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151026006114/en/

Fitch Ratings
Shalini Mahajan
Managing Director
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Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
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Director
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Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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