We also assigned our 'B' long-term rating to a proposed issue of secured notes that the company guarantees. Maxpower Group Issuer, a special-purpose vehicle that MAXpower fully owns, will issue the notes. The rating on the notes is subject to our review of the final notes documentation.
"The 'B' rating on MAXpower reflects the company's relatively stable cash flows from a small portfolio of small-scale gas power plants, underpinned by take-or-pay offtake contracts," said Standard & Poor's credit analyst Richard Creed.
In our view, the company has a solid competitive niche in the small-scale gas power market in which the company develops, owns, operates, and services small-scale gas power units, mainly in remote locations and for industrial customers in Indonesia. While the company is growing rapidly, the credit profile is constrained by the small size and scale of the company's generation portfolio; its lack of track record, including in renewing maturing offtake contracts; and a highly leveraged financial profile.
If the company proceeds with the proposed bond issue early in 2015, we expect MAXpower's financial profile to remain highly leveraged for at least the next two years. Proceeds from the issue are to be used to refinance US$190 million-US$200 million of the company's amortizing syndicated bank debt, with the balance to fund expansion. The proposed bond terms and conditions allow for a further US$75 million to be issued upon the company achieving an unaudited quarterly cash EBITDA of US$15 million. We think this eventuality is probable by the third quarter of 2015.
"The stable outlook captures our expectation that financial metrics will improve in 2016 as planned capacity additions would increase cash flow generation. In addition, we expect MAXpower to keep a high proportion of take-or-pay power contracts in its portfolio. Both dynamics should cause debt to EBITDA to remain highly leveraged but to gradually improve toward marginally below 5.0x by 2016," Mr. Creed added.