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Fitch lowers PPL Energy Supply's rating after spin-off announcement

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Credit ratings firm Fitch Ratings lowered PPL Energy Supply's long-term and short-term issuer default rating after PPL Corp. announced it was spinning off the business.

PPL Energy Supply LLC’s long-term issuer default rating went from BBB- to BB and its short-term rating went from F3 to B, according to a news release from Fitch. The firm also put the energy supply company’s issuer default rating on Rating Watch Negative.

The lowering did not affect any other aspects of PPL Corp., based in Allentown. PPL Electric Utilities, which serves sections of the midstate, has a credit rating of BBB.

Saying its energy supply business had not achieved the same “equity valuation” as its rate-regulated business, PPL Corp. announced it was spinning off PPL Energy Supply and merging it with Riverstone Holdings LLC, which has offices in New York and Texas. The supply business is the parent company of PPL Generation LLC and PPL EnergyPlus LLC.

The new company, Talen Energy Corp., will own and operate 15,320 megawatts of generating capacity in U.S. competitive energy markets.

Upon closing, PPL’s supply business will survive and become the second-tier holding company under Talen and the direct parent of its existing subsidiaries and Riverstone’s three operating units, Raven, Jade and Sapphire, according to Fitch. It will become the central financing entity at Talen. The existing debt at Riverstone will be refinanced at PPL Energy Supply and will be similar in terms to PPL supply’s existing senior unsecured debt obligations, Fitch said.

This spin-off is expected to be tax free to PPL and its shareholders. PPL will have no ownership interest in Talen. PPL’s shareholders will own 65 percent of Talen and Riverstone will own the remaining 35 percent. 

The transaction will likely further weaken PPL supply’s credit profile by adding highly levered Riverstone assets, partially offset by the estimated synergy savings, which will not likely be fully achieved until the 2016-2017 time frame, Fitch stated.

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