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Moody’s downgrades TransAlta after $800M loss

Tags: TransAlta

Fresh off posting a near $800-million second-quarter loss, power-producer TransAlta (TA-T) is now being downgraded by ratings agency Moody’s Investors Service.

On Tuesday, Moody’s says it lowered the company’s long-term rating to Baa3 from Baa2 -- putting the company one level above “junk.”

Moody’s says it lowered the company’s credit ratings after TransAlta warned investors last week that it would post a loss of $18 to $28 million in the second quarter.

“Moody's view that a previously improving trend had stalled and the company's financial metrics are more consistent with a Baa3 senior unsecured rating,” Moody’s said in a statement announcing the downgrade.

The ratings agency also warned about the deteriorating outlook facing the company, particularly its coal-powered assets. Last week, TransAlta settled two major uncertainties facing the company, namely its dispute with TransCanada over its Sundance power plant in Alberta and the future of its assets in Washington State.

An arbitration panel ruled that TransAlta had to restart its Alberta power plant where it had earlier signed an agreement with TransCanada, which the company said would cost it $50 million in net penalties.

That decision followed a previous announcement that TransAlta had signed an 11-year agreement with Puget Sound Energy to provide energy from its Centralia coal plant.

“Although the Sundance arbitration decision and the 11-year power contract with Puget Sound Energy for part of Centralia's output…clarified two significant outstanding issues facing the company, neither outcome was sufficient to mitigate the downward pressure on the company's rating,” Moody’s says.

“That said, our focus has shifted to the company's financial performance over the intermediate term, as well as the company's longer term transition plans for addressing the eventual end-of-life of its coal-fired fleet under pending Canadian regulations.”

Moody’s says that even with power agreement regarding its Centralia coal plant -- combined with its hedging program -- it will still only utilize 35 percent of the plant’s capacity, “which provides some certainty to a minimum cash flow, although not of a magnitude to materially improve financial metrics.”

On Tuesday, TransAlta said the net loss attributable to common shareholders in the second quarter was $797 million, or $3.51 per share, compared with a net profit of $12 million, or 5 cents per share, a year earlier.

Comparable loss was $22 million, or 10 cents per share, compared with a profit of $65 million, or 29 cents per share, a year earlier.

Revenue fell 21 percent to $407 million.

The company said it continues to target full-year funds from operations at the low end of its earlier forecast of $800 million to $900 million.

Some analysts have recently speculated that TransAlta might be forced to cut its dividend, which totals $265 million and yields more than 7 percent.

But chief executive Dawn Farrell maintained TransAlta’s commitment to its dividend, adding that the company continues have money left over to fund future projects.

"We think it would be pretty easy to attract a partner to projects, so we'd look at that," Farrell told analysts on Tuesday. "We also believe that we have a very strong reputation in the capital markets so we would look at that option."

With files from Reuters CTV Two CTV News CTV News Channel BNN - Business News Network CP24