DBRS Morningstar Confirms Ratings on Bruce Power L.P. at BBB with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Notes rating of Bruce Power L.P. (BPLP) at BBB with Stable trends. The rating confirmations reflect BPLP’s stable business risk profile underpinned by the fixed-price Implementation Agreement, its continuing robust credit metrics, and the good progress of the Unit 6 Major Component Replacement (MCR) project. The Stable trends reflect DBRS Morningstar's view that no material changes to BPLP’s credit fundamentals are expected for the next 12 months and the expected continuing progress of the Unit 6 MCR. DBRS Morningstar believes that the ongoing Coronavirus Disease (COVID-19) pandemic has so far had a limited impact on BPLP.

EBITDA was $1.5 billion and $1.4 billion for 2020 and the last 12 months ended March 31, 2021, respectively, which was lower than the record level of $1.7 billion achieved in 2019. The lower EBITDA was expected because Unit 6 entered into the MCR execution phase and has been out of service since January 17, 2020. Nonetheless, the achieved EBITDA over the past 12 to 18 months was still robust relative to the average over the past five years. In addition, there has been no increase in the net debt amount for the review period. As a result, BPLP’s key credit metrics continue to be at or above the high end of the BBB rating category for independent power producers rated by DBRS Morningstar. BPLP is deemed an essential service provider at both the provincial and federal levels, and, as a result, normal operations have continued amid the ongoing pandemic. The pandemic's impact on BPLP's financial performance over the past 12 to 18 months was insignificant given the continued operations and the fixed-price Implementation Agreement. The Unit 6 MCR has been progressing well with schedule and costs remaining intact despite the pandemic.

For 2021, DBRS Morningstar expects revenue and EBITDA to be slightly lower than 2020 levels. The increase in capital expenditures tied to the Unit 6 MCR will be primarily funded by mandatory capital calls to owners. No net distributions (after capital calls) to owners or additional debt are expected in 2021. As a result, key credit metrics are expected to remain at or above the high end of the BBB rating category.

DBRS Morningstar expects the ratings to remain stable for the next 12 months for the reasons explained above. A rating upgrade in the immediate future is unlikely given that the complex life-extension projects are now in full swing. On the other hand, a rating downgrade would likely be triggered by (1) a significant and sustained deterioration of credit metrics and/or (2) material cost overruns and delays associated with the life-extension projects.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Companies in the Independent Power Producer Industry (May 10, 2021; https://www.dbrsmorningstar.com/research/378166), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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 info@dbrsmorningstar.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.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

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

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