Bonds issued by the city of
Providence and backed by revenue from the Manchester Street power plant
owned by bankrupt USGen New England Inc., a subsidiary of PG&E
Electric Corp., were downgraded three levels to below-investment
or “junk” grade by Moody’s Investors Service.
The downgrade affects $37.6 million of outstanding bonds, the
credit-rating company said in a statement.
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Moody’s lowered its rating to Ba3 from Baa3, the lowest
investment grade level, and said it’s keeping the bonds on
“watchlist for a possible downgrade” because of increased risks
that a quarterly payment due in September might not be made.
“September is a critical time for us”’ said Yaffa Rattner,
a Moody’s analyst, in an interview. “It sets a precedent and an
expectation for the treatment of the payment within bankruptcy
court.”
She said the city of Providence, which has a Baa1 rating from
Moody’s on its general obligation bonds, has no liability if a
default occurs.
“The city may choose to continue to make the payments in
order to prevent a default. However, at this time, it is not
legally required to do so,” Rattner said. “There is no explicit
moral obligation here.”
USGen New England is part of PG&E’s power-generation
business, PG&E National Energy Group Inc. The Bethesda, Maryland-
based company, which owns 23 power plants in 14 states, filed for
bankruptcy July 8. National Energy is in default on $3 billion of
obligations, Moody’s said in a July 9 report when it lowered
USGen’s credit rating to Caa3 from Caa1.
Bloomberg News
