DBRS Morningstar Confirms Northland Power Solar Finance One L.P. at A (low) with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the Senior Secured Amortizing Bonds, Series A (the Bonds) rating of Northland Power Solar Finance One L.P. (ProjectCo) at A (low) with Stable trends. The Bonds, due June 30, 2032, currently has an outstanding balance of approximately $190 million. The rating confirmation reflects ProjectCo’s continuing strong operating and financial performances for the 12-month period ended December 31, 2019.

ProjectCo’s debt obligations are guaranteed on a joint and several basis by the six project limited partnerships (Project LPs). The Project LPs are six operating solar photovoltaic power generating facilities with an aggregate capacity of 60 megawatts located across Ontario (together, the Project). The Project has had more than six years of consistently strong operating and financial results. In 2019, the overall production was 11% and 3% higher than the P90 (rating case) and P50 forecasts, respectively. The higher-than-expected energy production was driven by (1) a high availability of 99.8% (versus the expected 99.0%); (2) a year-over-year improvement of solar insolation levels in Ontario; and (3) the possibly enhanced winter energy yield as a result of installing snow removal equipment in early 2019. The debt service coverage ratio (DSCR) of 1.71 times (x) in 2019 was materially higher than the expected 1.53x in DBRS Morningstar’s P90 rating case. The better-than-expected DSCR was driven by a combination of strong production/revenue (versus rating case) and stable operating cost that was consistent with the budget.

The ratings are underpinned by (1) the strength of the 20-year fixed-price feed-in-tariff contracts with the Independent Electricity System Operator (rated A (high) with a Stable trend by DBRS Morningstar); (2) consistently strong operating and financial results; (3) an enhanced project finance structure; and (4) Northland Power Inc. as an experienced owner-operator. The ratings are constrained by (1) the long-term solar panel degradation risk and (2) potential revenue volatility driven by the variable solar insolation levels and the expected performance ratio. As of February 2018, DBRS Morningstar no longer assigned any value to the supplier SunEdison Inc.’s solar panel performance warranties as a result of its restructuring under bankruptcy. Nonetheless, DBRS Morningstar does not expect the absence of warranties to adversely affect the Project going forward.

DBRS Morningstar expects the ratings to remain stable for the next 12 months; however, a material and sustained underperformance (versus the rating case) could trigger a negative rating action. A positive rating action in the near term is unlikely given that the rating-case DSCR of 1.53x is at the lower end of the “A” rating category.

Notes:
All figures are in Canadian dollars unless otherwise noted.

PXX means exceedance probabilities. P50, P90, and P99 values describe estimated minimum electricity generation with a probability of 50%, 90%, or 99%, respectively, in any given year (P50, one-year P90, and one-year P99). Unless otherwise specified, all PXX values in the press release are in reference to one-year PXX values adjusted by DBRS Morningstar, which considers availability and degradation factors.

The principal methodologies are Rating Solar Power Projects and DBRS Morningstar Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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