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, maturing on June 30, 2032, currently have an outstanding balance of approximately $150 million. The rating confirmations reflect ProjectCo’s continuing strong performance over the last 12 months ended on December 31, 2022.
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 Project) with an aggregate capacity of 60 megawatts located across Ontario. The A (low) ratings are underpinned by (1) the strength of the 20-year fixed-price feed-in-tariff contracts with the Independent Electricity System Operator, a high credit-quality offtaker; (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.
The Project has had more than nine years of consistently strong performances. In 2022, the overall production was 17% and 9% higher than the P90 (rating case) and P50 forecasts, respectively. The higher-than-expected energy production was primarily driven by (1) a high availability of 99.6% (versus the expected 99.0%) and lower-than-expected cumulated panel degradation, (2) strong solar insolation levels across the Project's sites in the year, and (3) enhanced winter energy yield as a result of installing snow removal equipment since 2019. The debt service coverage ratio (DSCR) of 1.83 times (x) in 2022 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 (including the capital expenditure) that was lower than the forecast.
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's performance 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), albeit unlikely, could trigger a negative rating action. A sustained outperformance (versus the rating case), with a positive revision to the P90 energy forecast, can result in a positive rating action.
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
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/396929 (May 17, 2022).
All figures are in Canadian dollars unless otherwise noted.
PXX = exceedance probabilities. A P50-P90-P99 value describes estimated minimum electricity generation with a probability of 50%, 90%, or 99% in any given year (P50, one-year P90, and one-year P99). Unless otherwise specified, all PXX values in this press release are in reference to one-year PXX values, adjusted by DBRS Morningstar, considering degradation and other factors.
The principal methodology applicable to the ratings is the Global Methodology for Rating Solar Power Projects (September 6, 2022; https://www.dbrsmorningstar.com/research/402404/global-methodology-for-rating-solar-power-projects).
The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies. Other applicable methodologies include DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683).
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.
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.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at email@example.com.
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577