We note TransAlta Corporation (TransAlta or the Company) has announced an agreement to acquire Mountain Peak Power LLC and Canyon Peak Power LLC, which own two contracted natural gas-fired peaking facilities, totaling 318 megawatts near Denver.
As disclosed by TransAlta, the transaction value is approximately USD 1.0 billion, including the assumption of approximately USD 750 million of senior secured project-level debt and approximately USD 250 million of equity financing, which is expected to be funded through a concurrent bought-deal common share offering. The assets are expected to contribute approximately USD 80 million of adjusted EBITDA per year and approximately USD 33 million of free cash flow per year, with potential upsize from availability incentive payments. The facilities are 100% contracted under long-term tolling agreements with investment-grade counterparties, with a weighted-average contract life of approximately 27 years and pass-through treatment for fuel, operations and maintenance, and capital costs. The acquisition is expected to close in early Q4 2026, subject to Canyon Peak Power achieving commercial in-service and customary closing conditions, including regulatory approvals.
We view the acquisition as strategically consistent with TransAlta's objective of increasing contracted cash flows in core geographies. From a business risk perspective, the transaction is modestly positive, as it adds long-term contracted dispatchable capacity in the Western United States and improves geographic and customer diversification. The fixed-capacity nature of the tolling agreements, long contract tenor, investment-grade counterparties, and cost pass-through structure reduce the commodity price and margin volatility normally associated with gas-fired generation. However, we do not expect the acquisition, by itself, to materially change TransAlta's overall business risk assessment, as the Company will continue to have meaningful exposure to Alberta merchant power prices, hedging outcomes, energy marketing performance, and execution risk related to its growth and redevelopment initiatives.
TransAlta's credit metrics are already under pressure following weaker 2025 and softer first quarter of 2026, primarily because of lower Alberta power prices, lower hedge prices, reduced market volatility, and the cessation of coal-fired generation at Centralia. Although the acquired assets are expected to add stable contracted EBITDA and free cash flow, the transaction includes a significant amount of project-level debt and is expected to pressure TransAlta's consolidated cash flow-to-debt metrics. We have previously indicated that a negative credit rating action could occur if TransAlta's cash flow-to-debt ratio were sustained below 15% (LTM Q1-2026: 14.8 %). We do note the Company is not raising any corporate level debt for the acquisition and the assets generate free cash flow after factoring debt-servicing on the asset level debt.
We note there are several tailwinds that could support an improvement in TransAlta's financial risk profile over the next two years, including the contribution from the acquired assets, the expected contracted contribution from the Far North acquisition, the potential future contribution from Centralia following completion of the planned coal-to-gas conversion, and an improving outlook for power prices in Aberta. In addition, the Company is also evaluating near-term measures like asset recycling, security exchange or conversion, or other capital structure initiatives aimed at reducing debt.
We expect to review the Company's updated financial plan including its proposed near-term credit improvement measures with a focus on whether TransAlta can demonstrate a credible path to restoring and sustaining cash flow-to-debt above 15% over a reasonable time horizon while maintaining adequate liquidity and financial flexibility. A negative credit rating action could occur if the review indicates that cash flow-to-debt is likely to remain below 15% for a sustained period.
Notes:
All figures are in Canadian dollars unless otherwise noted.
Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
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