S&P downgrades FirstEnergy

S&P said it lowered the corporate credit rating on FirstEnergy Solutions Corp. to CCC+ from B and removed it from CreditWatch, where it was placed with negative implications in November.

The outlook is negative.

The senior secured rating also was lowered to B and unsecured ratings were lowered to CCC+, S&P said.

The recovery ratings of 1 and 3L for the secured and unsecured ratings, respectively, were not changed, the agency said.

The lower ratings stem largely from messaging provided by the issuer in recent market communications, S&P said.

Based on weakened market conditions and an increasing willingness to exit the volatile merchant power business, parent FirstEnergy Corp. announced that it could file a pre-packaged bankruptcy filing in the next 18 to 24 months, the agency explained.

The company also is pursuing sales of its unregulated generating assets, S&P added, and recently announced the potential sale of certain assets of Allegheny Energy Supply LLC.

The agency said it believes that Allegheny is actually of stronger credit quality than the remainder of this portfolio, so the absence of it could have a depressing effect on the company's credit quality.

Further sales could be likely as the larger parent entity attempts to limit its exposure to merchant cash flows and de-leverage, S&P said, and these too could weaken credit quality.

Even without a bankruptcy filing, the agency said it expects the company's financial metrics will transition into the highly leveraged category in the next few years as hedges roll off.

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