Moody’s Investors Service Feb. 6 became the second credit rating agency to lower Ohio, Ky.’s pollution-control refunding revenue bonds below investment grade.
Moody’s downgraded the senior secured rating to Ba1 from Baa2, affecting $83.3 million of bonds issued for the Big Rivers Electric Corp. Project.
Standard & Poor’s downgraded the bonds to BB-minus from BBB-minus on Feb. 4.
Moody’s said its downgrade reflects the “significantly increased financial and operating risks” for the Big Rivers project due to the recent announcement by Alcan Corp., which provided 12-months notice to terminate the power contract of its subsidiary, Alcan Primary Products Corp.
Big Rivers had already received a 12-month termination notice about another major power contract termination from Century Aluminum Co. last August.
Both Alcan and Century have aluminum smelter operations, and have said that they are “not economically viable with current contract power rates and under current market conditions,” according to Moody’s.
Big Rivers is a member-owned, nonprofit generation and transmission cooperative in Henderson, Ky., which provides wholesale electric power and services to three distribution cooperative members in 22 counties in the western part of the state.
Member Kenergy Corp. serves the two smelters, which comprise about two-thirds of Big Rivers’ annual energy sales as well as about 60% of its system demand and more than 60% of annual revenues.
Though Big Rivers will continue receiving revenues from base energy charges over the two, 12-month notice periods, Moody’s analyst Kevin Rose said the rating remains under review for further downgrade due to uncertainty concerning Big Rivers’ mitigation strategies, including whether it will seek “significant rate increases to address anticipated revenue shortfalls.”
In announcing its downgrade, S&P said losing the two smelters would “deprive the utility of the substantial anchors that have supported much of its fixed costs.”
The agency also said it was uncertain whether state regulators would approve reallocating costs to remaining customers.
“The downgrade reflects our assessments of the issuer’s ... heightened vulnerability to nonpayment after developments that we view as eroding the strength and stability of the utility’s revenue stream,” said Standard & Poor’s analyst David Bodek.