DBRS Limited (DBRS Morningstar) confirmed the following ratings of Brookfield Renewable Partners L.P. (BEP or the Company) and its subsidiaries:
-- BEP’s Issuer Rating at BBB (high)
-- BEP’s Class A Preferred Limited Partnership Units rating at Pfd-3 (high)
-- BEP’s Class A Preferred Limited Partnership Units (U.S.) rating at BBB (low)
-- Brookfield Renewable Partners ULC’s (BEP ULC) Senior Unsecured Debentures and Notes (the Senior Notes) rating at BBB (high)
-- Brookfield Renewable Power Preferred Equity Inc.’s (BEP Equity Inc.) Class A Preference Shares (Preferred Shares) rating at Pfd-3 (high)
All trends are Stable.
The Senior Notes issued by BEP ULC and Preferred Shares issued by BEP Equity Inc. are unconditionally and irrevocably guaranteed by BEP.
DBRS Morningstar notes that the Coronavirus Disease (COVID-19) pandemic has negatively affected global economic activity, which has lowered demand for electricity. However, the impact of the pandemic on BEP’s operations has been limited as the Company continues to operate as an essential service. In addition, the Company benefits from a large, well-diversified portfolio of assets; long-term power purchase agreements (PPAs) with strong customer diversification; good liquidity; and low leverage at the corporate level.
DBRS Morningstar expects BEP’s size and diversification to improve further when the all-share-exchange acquisition of an additional interest (to 67% from 29%) in TerraForm Power, Inc. (TERP) closes, expected in Q3 2020 (the TERP Transaction). TERP owns approximately 4,220 megawatts of renewable generation capacity, mostly in the U.S., Canada, and Europe, and generated approximately $744 million in EBITDA in 2019. BEP has an average remaining life of PPAs of l4 years. Approximately 95% of expected generation output in 2020 will be under PPAs and hedges (77% for 2021), significantly mitigating BEP’s exposure to commodity price risk over the medium term. DBRS Morningstar expects BEP to continue to manage its contractual portfolio on an ongoing basis and to reduce the uncontracted portion in 2022 and 2023 as circumstances allow. BEP’s contractual profile is also supported by a diversified and solid credit customer base of over 600 counterparties with over 80% being power authorities, distribution companies, or Brookfield Asset Management Inc.’s (BAM; rated A (low) with a Stable trend by DBRS Morningstar) affiliates.
BEP’s financial profile improved in 2019 and remained strong in Q1 2020. BEP’s key credit metrics, both on a consolidated and deconsolidated basis, improved from a solid 2018 level, largely supported by stronger cash flow from portfolio growth, higher generation, higher average realized prices, and lower deconsolidated debt. In assessing BEP’s financial profile, DBRS Morningstar focuses on BEP’s key deconsolidated metrics because (1) substantial debt is at the project level, which is nonrecourse to BEP, and these projects are self-financed and (2) distributions to BEP from projects are net of cash distributions to noncontrolling interest partners. In this regard, BEP’s cash flow-to-deconsolidated debt and cash flow-to-interest coverage ratios improved significantly in 2019 and the last 12 months ended March 31, 2020 (LTM 2020), supported by a modest reduction in corporate debt and stronger cash flow available to BEP. For LTM 2020, deconsolidated cash flow-to-debt was 31.7% (23.8% in 2018) and deconsolidated debt-to-capital was 21.9% (23.2% in 2018). These ratios should improve further in 2020 and will provide BEP with financing flexibility over the medium term, reflecting incremental cash flow from the TERP Transaction. BEP’s corporate liquidity remained strong with approximately $2.55 billion in cash and available credit facilities as of March 31, 2020, and no material long-term corporate debt due until 2022. BEP’s current ratings factor in the (1) structural subordination of BEP’s debt to project-level debt, which is significantly mitigated by the diversification of cash flow, and (2) implicit support by BAM, which indirectly owns 57% of BEP on a fully exchanged basis and provides BEP with a $400 million credit facility.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.
All figures are in U.S. dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Independent Power Producer Industry (May 19, 2020); DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 1, 2019); DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 22, 2020); and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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 firstname.lastname@example.org.
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.
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