Vistra Corp. upgraded to investment grade by S&P on improved risk profile

Investing.com -- S&P Global Ratings has upgraded Vistra Corp. to investment grade, raising its issuer credit rating to ’BBB-’ from ’BB+’ with a stable outlook.

The upgrade follows Vistra’s announcement of a power purchase agreement (PPA) for its Comanche Peak Nuclear Power Plant and the completion of its acquisition of natural gas assets from Lotus Infrastructure Partners.

S&P cited strengthened business risk profile and improved long-term cash flow visibility through capacity revenues and contracted cash flows as key factors in the rating action.

The ratings agency expects Vistra’s adjusted debt-to-EBITDA ratio to be in the mid-3.0x range by the end of 2025, decreasing to 2.6x-2.8x by 2026-2027. Achieving these metrics consistently could lead to further rating improvements depending on the company’s capital allocation priorities.

Vistra’s business model combines wholesale generation with a strong retail arm, providing competitive advantages. The company’s integrated approach, hedging profile, capacity revenues, nuclear production tax credits, and contracted cash flows effectively mitigate wholesale energy margin risk.

The company has limited exposure to fluctuating wholesale power prices, with approximately 96% of expected generation for 2026 already hedged. About 70% of expected generation is hedged for 2027, with visibility expected to improve as additional hedges are added.

Vistra’s increased capacity in PJM is viewed as credit positive due to robust market fundamentals supporting strong auction results. The acquisition of Energy Harbor Corp.’s 4 gigawatt nuclear fleet in 2024 and the 2.6 gigawatt portfolio of natural gas assets from Lotus in 2025 significantly increased the company’s PJM exposure, which now represents about 35% of Vistra’s capacity.

The recently signed 20-year PPA for 1,200 gigawatts at Comanche Peak with an investment-grade counterparty further strengthens Vistra’s business risk profile. Delivery will begin in the last quarter of 2027 and reach full capacity by 2032, with an option to extend for an additional 20 years. The contract is expected to increase adjusted free cash flow before growth by 8%-10% once it reaches full capacity.

S&P projects Vistra’s EBITDA will exceed $7 billion by 2026, up from the high $5 billion range in 2025. Free operating cash flow is expected to improve to 20%-23% of debt by 2026, up from approximately 13% in 2025.

The company plans to continue its share buyback program of about $1 billion annually while also paying down some debt. Vistra has reduced its float by approximately 30% since initiating the program in November 2021.

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