PPL Montana (PPLM), LLC is expected to retire in the fourth quarter of 2013 its $338 million ($90 million outstanding) pass-through trust certificates due 2020 (‘BBB-‘/Stable Outlook) with cash on hand from a subsidiary of its parent PPL Corp., according to Fitch Ratings. The debt retirement is based upon the expected sale of 633 megawatts of hydropower assets and the Hebgen Lake Reservoir to NorthWestern Energy. The prospective retirement of the rated debt has no effect on Fitch’s rating, which continues to be based upon the project’s cash flow resiliency amid increasing exposure to merchant market prices.
PPLM will pay $271 million to retire the outstanding pass-through trust certificates and terminate the sale-lease back arrangement, reacquiring its 25% (529MW) interest in the Colstrip coal-fired facility. PPLM’s ownership in the Colstrip coal-fired facility is subject to approval by the Federal Energy Regulatory Commission. Though the PPLM debt is expected to be retired this year, the sale of the hydropower assets to NorthWestern requires regulatory approval that may take up to one year to obtain.
The security for the rated debt is limited to the owner-lessors’ interests in the Colstrip power plant, though PPLM’s obligation to pay rent is a general unsecured obligation of PPLM. As such, revenue derived from operation of the entire portfolio, including the hydropower assets, is available for rent payments. Therefore, PPLM could not sell the hydropower assets without meeting obligations on the pass-through trust certificates and the lease.