Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDR) for Vistra Corp. and Vistra Operations Company, LLC (Vistra Ops) to ’BB+’ from ’BB’ on April 17, 2025. The rating agency has also upgraded the senior unsecured debt of Vistra Ops to ’BB+’ from ’BB’, and Vistra’s preferred stock to ’BB-’ from ’B+’. The rating outlook remains stable.
The upgrade comes in light of Fitch’s expectation that Vistra’s gross EBITDA leverage will stay within the range of 3.0x-3.5x from 2025 to 2027. This is driven by an increase in wholesale generation EBITDA and a strong retail performance. Furthermore, an improved power price in Texas, a highly hedged generation portfolio in 2025-2026, and likely strong results from the PJM capacity auction are expected to support wholesale EBITDA growth.
Vistra’s gross EBITDA leverage improved to 3.3x at the end of 2024, down from 3.8x in 2023. Fitch expects this improvement to continue, given favorable power demand and supply dynamics. The company has hedged nearly all of its expected generation for 2025 and 80% for 2026 as of November 2024. Management expects to generate adjusted EBITDA of between $5.5 billion and $6.1 billion in 2025, and over $6 billion in 2026.
Fitch expects Vistra to generate between $1.5 billion and $2.5 billion of free cash flow (FCF) annually over 2025-2027. This calculation includes dividends paid to shareholders and capital expenditures, but excludes two natural gas projects in Texas that Vistra is evaluating.
Vistra is well positioned to benefit from strong market fundamentals in its largest markets, ERCOT and PJM, due to high power demand. The company’s 2024 acquisition of Energy Harbor is viewed favorably by Fitch, as it provides geographical diversification and adds strong baseload assets to Vistra’s generation portfolio.
Vistra’s retail business provides revenue stability with high renewal rates and stable margins. The company has also addressed gas deliverability and fuel handling issues, which contributed to financial losses during winter storm Uri in February 2021.
In comparison to peers NRG Energy (NYSE: NRG ) and Calpine Corporation, Vistra is well positioned in terms of size, scale and geographic and fuel diversity. However, more than 60% of its consolidated EBITDA comes from operations in Texas.
Fitch projects Vistra’s leverage to remain within the 3.0x-3.5x range in 2025-2027, which compares favorably to Calpine’s pre-acquisition leverage of around 5.0x and is comparable to NRG’s forecast leverage of 3.0x -3.5x.
The rating could be downgraded if the gross debt/EBITDA exceeds 3.5x on a sustained basis, if there is weaker power demand or higher than expected supply, unfavorable changes in regulatory constructs and markets, or an aggressive growth strategy that diverts a significant proportion of FCF toward merchant generation assets and/or overpriced retail acquisitions.
On the other hand, an upgrade could be possible if there is demonstrated EBITDA leverage lower than 3.0x on a sustainable basis coupled with a track record of stable EBITDA generation and continued emphasis on an integrated wholesale-retail platform.
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