Morningstar DBRS Confirms Issuer and Debt Ratings on Seven Solar Power Projects Owned by Concord Solar Energy Inc.; All Trends Are Stable

DBRS, Inc. (Morningstar DBRS) confirmed its ratings on seven issuers and their related term loans for solar power projects (the Projects) owned by Concord Solar Energy Inc. (CSEI), as follows:

(1) Concord MightySolar Partnership
-- Issuer Rating at BBB
-- $50.6 million Term Loan (Due June 30, 2033) at BBB

(2) Concord Val Caron Partnership
-- Issuer Rating at BBB
-- $47.8 million Term Loan (Due March 31, 2032) at BBB

(3) Concord RayLight Partnership
-- Issuer Rating at BBB
-- $51.4 million Term Loan (Due September 30, 2033) at BBB

(4) Concord Aria Partnership
-- Issuer Rating at BBB
-- $52.8 million Term Loan (Due September 30, 2034) at BBB

(5) Concord EarthLight Partnership
-- Issuer Rating at BBB
-- $53.9 million Term Loan (Due September 30, 2034) at BBB

(6) Concord Alfred Partnership
-- Issuer Rating at BBB
-- $60.3 million Term Loan (Due March 31, 2035) at BBB

(7) Concord BeamLight Partnership
-- Issuer Rating at BBB
-- $57.6 million Term Loan (Due December 31, 2034) at BBB

All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The ratings are anchored by (1) the strength of the long-term, fixed-price power purchase agreements (PPAs) with a strong credit quality offtaker extending at least six months beyond full debt amortization; (2) proven solar photovoltaic (PV) module technology and appropriate operating and maintenance arrangements with an experienced operator; (3) an enhanced project finance structure with features that include a comprehensive security package, segregated blocked accounts, a cash flow waterfall, debt service and maintenance reserves, and restrictive covenants; and (4) minimum debt service coverage ratios (DSCRs) commensurate with the ratings of 1.35 times (x) to 1.36x in the Morningstar DBRS rating case, depending on the Project. The main constraints for the ratings include (1) cross default and acceleration of the loans, such that the ratings are capped by the weakest rating; (2) variability of the solar energy resource (particularly as a result of snowfall in winter), such that lower-than-expected solar insolation and system performance can negatively affect revenue and cash flow; and (3) module degradation risk, as is typical for solar PV projects.

CREDIT RATING DRIVERS
Morningstar DBRS notes that a material and sustained financial underperformance of a project with commensurate DSCRs compared with the rating case could cause a negative rating action. Although unlikely in the short term, a material consistent outperformance compared with the rating case may cause a positive rating action.

FINANCIAL OUTLOOK
Minimum DSCRs range between 1.35x and 1.36x in the Morningstar DBRS rating case, depending on the Project.

CREDIT RATING RATIONALE
The Projects consist of seven solar power generation facilities ranging in size from nine to 10 megawatts (alternate current) operating across Ontario since 2014–15, depending on the Project. Each Project is contracted under a 20-year feed-in-tariff PPA with the Independent Electricity System Operator and connected to the Hydro One Networks Inc. distribution system. The PPAs expire in 2034 and 2035, eight to 24 months after the full amortization of the term loans, depending on the Project.

All seven Projects have separate stand-alone term loans, but they have the same ownership. After a reorganization, the 99.9% ownership stakes held by general partners of all the individual Projects were consolidated into a single entity, CSEI. As a result, the loans are linked by the pledge of 100.0% of the equity interests in CSEI (which, in turn, owns 99.9% of all Projects) and the 0.1% owner of each of the Project partnerships; a cross default to any other outstanding debt; and a cross acceleration to the other term loans. Based on the cross default and cross acceleration, Morningstar DBRS caps each Issuer Rating and debt rating at the weakest rating of the seven issuers and their related term loans. Morningstar DBRS notes that lenders have the choice to exercise the cross default if a default occurs at one of the seven issuers (i.e., the cross default is not automatic to the other six Projects).

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) at https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings

RATING DRIVER AND FINANCIAL RISK ASSESSMENT (FRA)
A) Weighting of BRA Factors
-- In the analysis of each of the Issuers, the Rating Driver factors listed in the methodology are considered in the order of importance.

B) Weighting of FRA Factors
-- In the analysis of each of the Issuers, the following FRA factor listed in the methodology was considered more important: DSCR (this is the only applicable factor).

C) Weighting of the BRA and the FRA
-- In the analysis of each of the Issuers, the FRA carries greater weight than the BRA.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Solar Power Projects (12 September 2023)
https://dbrs.morningstar.com/research/420439/global-methodology-for-rating-solar-power-projects

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.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 [email protected].

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit 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. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at [email protected].

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