Issuer Ranking: U.S. Energy Merchants/Power Developers/Trading And Marketing Companies, Strongest To Weakest May 10
Standard & Poors, May 2010
Abstract
The U.S. power merchant sector's credit profile is relatively stable in 2010 compared with the industrial composite because hedging strategies--forward sales of physical power or financial hedges through swaps and options, etc.--have so far worked as initially expected. Several merchant power generators entered the recession in 2008 with a large hedged proportion of their generation at the then prevailing high forward prices. As a result, hedging protected these companies from volatile, but generally declining, natural gas prices of the past two years. We have viewed hedging as beneficial for the sector's credit quality since it provides greater certainty of cash flow. We have noted that hedging activities insulate, but do not isolate, power merchants from commodity price effects. The high-price...
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Research Type: Commentary
Criteria articles describe the thought process and methodology Standard & Poor's analysts use in determining ratings. These commentary pieces discuss both the quantitative (economic and financial) and qualitative (business analysis and caliber of management) aspects of the analysis, as well as legal issues.
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- PSEG Power LLC
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- Mirant North America LLC
- AEI
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