DBRS Morningstar Confirms Northland Power Solar Finance One L.P. at A (low) with Stable TrendsProject Finance
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 or the Issuer) at A (low) with Stable trends. The Bonds, maturing on June 30, 2032, currently have an outstanding balance of approximately $164 million. The rating confirmation reflects ProjectCo’s continuing strong operating and financial performances for the 12-month period ended December 31, 2021.
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 (together, the Facilities or the project), located in Ontario, with an aggregate capacity of 60 megawatts (MW). The Project has had more than eight years of consistently strong operating and financial performances. In 2021, the overall production was 14% and 6% higher than the P90 (rating case) and P50 forecasts, respectively.
The higher-than-expected energy production was driven by (1) a high availability of 99.7% (versus the expected 99.0%); (2) relatively strong solar insolation levels across the Project's sites; and (3) an enhanced winter energy yield as a result of installing snow removal equipment in early 2019 and better winter solar insolation level. The debt service coverage ratio (DSCR) of 1.77 times (x) in 2021 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 the rating case) and stable operating cost, including the capital expenditure that was slightly lower than the forecast.
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) the 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 solar panel performance warranties of the supplier, SunEdison, Inc., as a result of its restructuring under bankruptcy. Nonetheless, DBRS Morningstar does not expect the absence of warranties to adversely affect the Project in the future.
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.
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.
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 (August 18, 2021; https://www.dbrsmorningstar.com/research/383184) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021; https://www.dbrsmorningstar.com/research/379424), 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).
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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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