OREANDA-NEWS. S&P Global Ratings said today it lowered its corporate credit ratings on Homer City Generation L. P. to 'CC' from 'CCC-'. The outlook is negative. We also lowered the issue-level ratings on the company's senior secured debt to 'CC' from 'CCC'. In addition, we revised the recovery ratings on the debt to '3' from '2'. The '3' recovery rating indicates expectations for meaningful (50%-70%; higher end of the range) recovery if a default occurs.

"The downgrade to 'CC' reflects our view that default is a virtual certainty," S&P Global Ratings credit analyst Kimberly Yarborough. "It follows Homer City's Oct. 3 announcement that it had entered into a forbearance agreement with a majority of its noteholders to extend its debt payment deadline to Oct. 17. Despite the extension, we expect the company to be unable to pay its debt payment and anticipate that it will enter into chapter 11 proceedings in the near future."

On Aug. 17, Homer City announced it had received bids ranging from an implied enterprise values of $230 million to $535 million (about $122/kilowatt (kW)-$284/kW) and that bondholders had rejected each of these bids. We presume the asset will be transferred to lenders after the Oct. 17 forbearance deadline. Finally, liquidity remains our primary concern, and we continue to assess it as weak.

The negative outlook reflects the likelihood that we will lower the rating to 'D' following the forbearance, at which point we expect the asset to be transferred to lenders.