DBRS Confirms Mississagi Power Trust at A (low)

DBRS has today confirmed the rating on the $175 million Senior Secured Bonds (the Bonds) of Mississagi Power Trust (MPT or the Issuer) at A (low) with a Stable trend. The Bonds are secured by the hydroelectric power generation assets (the Project) of MPT. The rating reflects the strength of MPT’s low-cost generating facilities with storage capacity, dispatch flexibility and reliable operating performance. The rating is also supported by the energy sales contracts currently in place, as well as by long-term fundamentals in the Ontario wholesale power market, which give low-cost power generation attractive underlying values.

Based on the assessment by the independent engineer (IE) in late 2008, the Project has a long-term average production of 750 GWh per year. A detailed long-term capital plan and budget, reviewed and approved by the IE, are being carried out to ensure energy production efficiency and the safety and useful life of the power generation assets. The next IE review is due in late 2013.

MPT benefits from a 20-year Master Power Purchase and Sale Agreement (MPPS Agreement) with Brookfield Energy Marketing LP (BEMLP), not rated by DBRS) and guaranteed by Brookfield Renewable Power Inc. (BRP, rated BBB (high) with a Stable trend). The MPPS Agreement has an inflation-adjusted price, currently around $70/MWh. The contract has a term through December 31, 2022, two years past the maturity date of the Bonds. BRP, in turn, has a 20-year sale agreement, through 2029, to sell power to the Ontario Power Authority (OPA, rated A (high) with a Stable trend) at a higher price level than that of MPPS, providing support to BRP’s commitment to purchase power from various projects in Ontario, including MPT.

Given the OPA contract that has been in place since 2009 and substantially mitigated MPT’s market exposure, hydrology became the primary risk that constrains the rating. In 2010 and early 2011, lower water flow caused lower production and cash flow. Coverage ratios, although weaker than precious years, remained acceptable.

The operating and financial results are expected to continue this pattern of fluctuation with the water resource. The six-month debt service reserve is a reasonable mitigation for any potential cash flow shortfall that could occur due to this uncertainty.

Refinancing risk is mitigated by the long-life nature of MPT’s hydroelectric generation assets and the sustainable strength in the Project’s economics. The energy environment in Ontario continues to evolve, but is expected to remain favourable for emission-free renewable energy producers like MPT.

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

The applicable methodology is Rating Project Finance, which can be found on our website under Methodologies.