DBRS Limited (DBRS Morningstar) confirmed its ratings on Brookfield Renewable Partners L.P. (BEP or the Company) and its subsidiaries Brookfield Renewable Partners ULC (BEP ULC), Brookfield Renewable Power Preferred Equity Inc. (BEP Equity), and Brookfield BRP Holdings (Canada) Inc. (BRPHC) as listed below. All trends are Stable. The Senior Unsecured Debentures and Notes (the Senior Notes) issued by BEP ULC, the Class A Preference Shares (the Preferred Shares) issued by BEP Equity, and the Subordinated Notes issued by BRPHC are unconditionally and irrevocably guaranteed by BEP. The confirmations reflect BEP’s solid and stable business risk profile, strong modified consolidated credit metrics in 2022 and in the last 12 months ended March 31, 2023 (LTM 2023), and DBRS Morningstar's expectation that the Company's credit profile will remain stable over the medium term. BEP’s ratings consider the (1) structural subordination of the Company’s debt to project-level debt, which is significantly mitigated by the diversification of cash flow, and (2) implicit support from Brookfield Corporation (BN; rated A (low) with a Stable trend by DBRS Morningstar), which indirectly owns 48% of BEP on a fully exchanged basis and provides BEP with a $400 million credit facility.
BEP's proportionate contracted portfolio is strong, with an average remaining contract life of 14 years on a proportionate basis. BEP's contracted portfolio limits its exposure to commodity price risk over the medium term. The contracts are well diversified with approximately 77% of the contracts' economic exposure being with power authorities, distribution companies, or BN affiliates. DBRS Morningstar expects BEP to continue to manage its contractual portfolio.
BEP continues to grow its portfolio with 3,475 megawatts (MW) of new assets having been commissioned in 2022. DBRS Morningstar expects that the Company will continue to grow over the medium term across its distributed and utility-scale solar, wind, and hydro assets. DBRS Morningstar expects that this expansion will be primarily for contracted assets and that BEP will not begin constructing new projects until power purchase agreements (PPAs) have been signed and it has received fixed-price engineering, procurement, and construction and equipment supply agreements, all of which, along with the Company's development experience, should reduce project execution risks. DBRS Morningstar expects these growth projects will increase BEP's size and geographic, customer, and technology diversification profiles. However, DBRS Morningstar expects that, as a whole, these assets will have modestly higher political risks and relatively weaker counterparties compared with BEP's existing portfolio.
DBRS Morningstar also expects BEP to continue make prudent investments in transition asset classes, such as carbon capture and storage, recycling, and renewable natural gas, with experienced partners. DBRS Morningstar views these transition assets as having higher business and technology risk profiles than the Company’s renewable generation business. DBRS Morningstar does not expect the transition assets to represent a significant portion of BEP's earnings over the medium to long term.
DBRS Morningstar expects that most of BEP's growth will be funded with nonrecourse financing and contributions from noncontrolling interest (NCI) partners, thus limiting the Company's economic exposure to any specific growth project. DBRS Morningstar expects BEP to prudently fund its contributions to these growth assets through a combination of debt, upsizing projects with nonrecourse debt, and capital recycling initiatives.
DBRS Morningstar focuses on the Company’s consolidated metrics but we also consider the modified consolidated metrics because of BEP’s contract and ownership structure. DBRS Morningstar notes that BEP’s 2022 and LTM 2023 modified consolidated key credit metrics remain strong. BEP’s corporate liquidity remains strong with approximately $3.9 billion in cash, marketable securities, and available credit facilities as of March 31, 2023, and no material long-term corporate debt due until 2025.
DBRS Morningstar expects the Company to maintain its modified consolidated key credit metrics in line with the current ratings by prudently funding its growth. DBRS Morningstar does not expect to take a positive rating action in the near term; however, a significant deterioration in BEP's business risk profile or a deterioration in its financial metrics could potentially result in DBRS Morningstar taking a negative rating action. Additionally, DBRS Morningstar notes that cash distributions to NCI increased materially in 2022 if this trend continues and this also results in significantly reduced cash flow available to service BEP’s debt could also result in DBRS Morningstar taking a negative rating action.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.
All figures are in U.S. dollars unless otherwise noted.
DBRS Morningstar applied the following principal methodologies:
-- Global Methodology for Rating Companies in the Independent Power Producer Industry (May 9, 2023) https://www.dbrsmorningstar.com/research/413646
-- DBRS Morningstar Global Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (October 20, 2022) https://www.dbrsmorningstar.com/research/404248
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023) https://www.dbrsmorningstar.com/research/411694/
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
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 finance-rating-methodologies
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The rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.
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.
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