Research Update: Kestrel Acquisition LLC Outlook Revised To Stable On Higher Debt Paydown And Improved Energy Margins, Rating Affirmed

Following years of cash preservation, Kestrel Acquisition LLC--the owner of Hunterstown Power Generation Station--swept $48 million of cash in 2023 supported by stronger energy margins. We updated our forecast to reflect the project's lower debt balances and higher cash flows in future periods based on our expectation for relatively stronger spark spreads over the next two years. We revised our outlook on Kestrel's debt to stable from negative and affirmed our 'B' rating. The '2' recovery rating (70%-90%) is unchanged, though we revised our rounded recovery estimate to 80% from 70%. The stable outlook reflects our expectation for improved spark spreads and energy margins in the near term, as well as some additional debt paydown via cash flow sweeps. We

...- Following years of cash preservation, Kestrel Acquisition LLC--the owner of Hunterstown Power Generation Station--swept $48 million of cash in 2023 supported by stronger energy margins. - We updated our forecast to reflect the project's lower debt balances and higher cash flows in future periods based on our expectation for relatively stronger spark spreads over the next two years. - We revised our outlook on Kestrel's debt to stable from negative and affirmed our 'B' rating. The '2' recovery rating (70%-90%) is unchanged, though we revised our rounded recovery estimate to 80% from 70%. - The stable outlook reflects our expectation for improved spark spreads and energy margins in the near term, as well as some additional debt paydown via cash flow sweeps. We expect the project's debt service coverage ratios (DSCRs) will exceed 1.25x through the asset's life (including the refinancing period) and anticipate there will be about $350 million of debt outstanding on its term loan at maturity...

Research Update