DBRS Morningstar Confirms Ratings on Comber Wind Financial Corporation at BBB, Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Comber Wind Financial Corporation’s (the Issuer) Issuer Rating and the rating on the $450 million Series 1 Senior Secured Bonds (the Bonds), due November 15, 2030, at BBB with Stable trends. The Issuer is the financing vehicle of 2016 Comber Wind Limited Partnership (ProjectCo and the Guarantor), a special-purpose entity that owns the 82.8-megawatt (MW) Comber East project and the adjacent 82.8-MW Comber West wind project (together, the Project) located in Essex County, Ontario. As at December 31, 2022, approximately $254.9 million of the Bonds were outstanding.

The Project commenced commercial operations in November 2011, generating an average of approximately 465.3 gigawatt hours (GWh) annually to YE2022, which is 6.2% above the annual P90 production forecast of 438.4 GWh and 7.2% more than the rating case forecast of 434.3 GWh. The P50 planned generation level is 500.7 GWh, as per the resource consultant's (Underwriters Laboratories Inc. or UL) wind assessment. The Project has not achieved the P50 generation level because of less favourable wind conditions compared with the plan; although, it approximated the P50 in 2013 and 2014. Revenue for the Project mirrors the generation. In 2022, the generation achieved was 464.6 GWh, approximately 7% more than the rating case forecast as a result of favourable wind conditions. The Project has not experienced any material operational issues.

Since the first full year of debt service in 2013, ProjectCo's annual debt service coverage ratio (DSCR) has been above the rating case projection minimum DSCRs 1.38 times (x). For the 12 months ended December 31, 2022, the Project achieved a DBRS Morningstar adjusted DSCR of 1.56x, higher than the previous year because of relatively higher generation and revenue.

DBRS Morningstar notes that the 2021 reported DSCR is changed to 1.39x from 1.43x. The reason for the change is the recognition of maintenance capex of $1.496 million which was not included in 2021 DSCR calculation.

ProjectCo benefits from fully contracted power prices at attractive rates under two feed-in tariff contracts (for Comber East and Comber West) with the Independent Electricity System Operator (IESO). The contracts expire 12 months after the maturity of the Bonds. For 20 years until November 2031, the IESO pays ProjectCo the difference between a fixed but partially indexed price, which was $146.4/MW hour for 2022, and the market price received in Ontario.

A negative rating action could be taken if the Project consistently underperforms below the P90 level. The rating is constrained by (1) the inherent uncertainty of wind forecasts, (2) operating and maintenance cost management, and (3) exposure to negative Hourly Ontario Energy Price (HOEP). These risks are partially mitigated by the Project’s actual performance, ability to maintain cost discipline, and minimal exposure to negative HOEP.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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).

Notes:
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.

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Wind Power Projects (September 6, 2022; https://www.dbrsmorningstar.com/research/402407)

The following methodologies have also been applied:
-- 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.

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 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.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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