DBRS Limited (DBRS Morningstar) upgraded the Issuer Rating and Series 1 Senior Secured Amortizing Notes (the Notes) rating of Trillium Windpower, LP (the Issuer) to BBB (high) from BBB. DBRS Morningstar also changed the trends to Stable from Positive. The Notes, which fully amortize on February 15, 2033, had $253.046 million of the $315.462 million principal outstanding as of September 30, 2020.
The Issuer is a special-purpose entity created to finance and indirectly own the 22.9-megawatt (MW) Conestogo and 124.4-MW Summerhaven wind farms in Ontario (collectively, the Project). The Project benefits from attractive long-term fixed-power prices under feed-in tariff (FIT) contracts with the Independent Electricity System Operator (IESO; rated A (high) with a Stable trend by DBRS Morningstar) for 20 years. The ongoing Coronavirus Disease (COVID-19) pandemic has not materially affected the Issuer’s operations or financial performance.
The rating upgrades reflect the Project's continued and consistent strong electricity generation, with a reliable operating and financial performance of more than six years. The actual debt service coverage ratios (DSCRs) have been well above the rating case minimum DSCR of 1.46 times (x), averaging 1.59x over the six-year period since 2014, and reached 1.63x for the last 12 months ended September 30, 2020 (LTM 2020). The strong DSCR has been driven by energy production consistently tracking the P50 estimate, achieving 102% of the P50 generation level over the six-year period on average. The Project also tracked its P50 generation level (99%) for LTM 2020.
Average wind turbine technical availability has been above plan with no reported major component failures. The Project’s Summerhaven facility is subject to economic curtailment but is compensated for almost all curtailment by the IESO, which forecasts the foregone energy that would have been generated free of curtailment based on the wind resource and other assumptions.
The Issuer is indirectly and wholly owned by Cordelio Power Inc. (Cordelio Power) through wholly owned subsidiaries. On June 29, 2018, a subsidiary of NextEra Energy Partners LP (whose parent company is NextEra Energy, Inc.) completed the sale of NextEra Energy Canada Partners Holdings, ULC, the former Project owner, to Cordelio Power. Headquartered in Toronto, Cordelio Power was launched in June 2018 by the Canada Pension Plan Investment Board (CPPIB; rated AAA with a Stable trend by DBRS Morningstar) to complete the purchase of a portfolio of wind and solar assets in Ontario. The Project continues to be operated by NextEra Energy Canada Operating Services, Inc. with no change in contracts. Cordelio AdminCo Inc., a wholly owned subsidiary of Cordelio Power, administers the Project, with new Administrative Service Agreements in place.
The ratings are supported by the fixed-price FIT contract, the Project's strong and consistent operating track record, and the strength of the owner and operator. The ratings are constrained by the inherent uncertainty with wind forecasts, operating and maintenance cost management, and exposure to negative Hourly Ontario Energy Price (HOEP) prices for the Summerhaven wind farm. These risks are partially mitigated by the Project’s strong actual performance, ability to maintain cost discipline, and a bidding strategy that largely eliminates negative HOEP price exposure.
A further rating upgrade is unlikely in the near future. DBRS Morningstar may take a negative rating action if there is material and sustained underperformance, causing a DSCR consistently below 1.45x.
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 Canadian dollars unless otherwise noted.
The principal methodologies are Rating Wind Power Projects (September 1, 2020) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 22, 2020), 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 email@example.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.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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