PG&E's troubles hit debt ratings of 550-MW Topaz solar park

Topaz Solar Farms LLC, the holding company for the 550-MW Topaz solar power station in California, has suffered a couple of rating downgrades following news that the sole off-taker of its power intends to file for bankruptcy.

Fitch Ratings announced on Wednesday that it has downgraded Topaz’s USD-1.1-billion (EUR 965m) senior secured notes to 'C' from 'BBB-'/Negative Watch, and removed the rating from Negative Watch. The reason for this move is the fact that a couple of days earlier Fitch also downgraded California utility Pacific Gas and Electric Company (PG&E), which is the sole purchaser of the electricity generated by the solar power complex.

The utility’s parent company, PG&E Corporation (NYSE:PCG), announced on Monday that it was getting ready to initiate voluntary reorganisation proceedings under Chapter 11 on or about January 29, because of the liabilities it piled up following the 2017 and 2018 Northern California wildfires.

Fitch immediately downgraded PG&E to 'C' from 'BBB-'/Rating Watch Negative. The agency noted that a downgrade of PG&E to 'D' would not necessarily trigger an equivalent downgrade of the rated debt if the utility continues to honor its commitments under existing power purchase agreements (PPAs).

As per Topaz, Fitch said that the possible loss of its 25-year PPA with PG&E in the utility’s potential bankruptcy could weaken the project's financial profile. “[...] in a merchant scenario, its cash flows could be inadequate to repay the debt,” the agency added.

Separately, S&P Global Inc (NYSE:SPGI) announced Thursday it has lowered its ratings on Topaz by two notches to 'CCC+' from 'B' after downgrading on Monday PG&E to 'CC' from 'B'. It pointed out that the rating on Topaz's bonds is higher than the issuer credit rating on the utility due to the lower possibility of a default on the PPA compared to the default risk of PG&E.

S&P maintains its CreditWatch Negative listing on Topaz’s debt rating.

"Given its PPSA terms are not at market, we do not assume that the contract will be readily assumed by another buyer and we do not know if the contract will remain intact, subjected to renegotiation, or rejected if PG&E files for bankruptcy," S&P said.

Topaz was built in San Luis Obispo County by First Solar Inc (NASDAQ:FSLR) and uses thin-film photovoltaic (PV) panels supplied by the latter. The USD-2.4-billion plant has been fully operational since end-February 2015 and is currently owned by BHE Renewables LLC (BHER).

(USD 1.0 = EUR 0.877)

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