DBRS Confirms Lièvre Power Financing Corporation at A (low)

DBRS has today confirmed the rating on the $225 million Senior Secured Bonds (the Bonds) of Lièvre Power Financing Corporation (LPFC or the Issuer) at A (low) with a Stable trend. The Bonds are secured by the hydroelectric power generation assets (the Project) of Lièvre Power LP (LPLP or the Company). The rating reflects the strength of LPLP’s low-cost generating facilities located at sites with solid market fundamentals and supported by the energy sales contracts currently in place. The Project has benefited from a contract price increase since late 2009, which offsets the hydrology risk and helps stabilize cash flow and the coverage ratio.

The Project has a total capacity of 263 megawatts (MW) and long-term average annual production level of 1,516 gigawatt hours (GWh), sustainable for at least 40 years. The expected production level is supported by a review and assessment every three years by the independent engineer (IE), with the most recent review in September 2011. A detailed long-term capital expenditure (capex) plan and budget, also reviewed and approved by the IE, is being carried out to ensure energy production efficiency and the safety and useful life of the power generation assets.

The wholesale power market in Ontario continues to be soft. Lower energy demand due to lingering weakness in the economy as well as conservation has weighed on energy prices. DBRS, however, believes that long-term electricity supply-demand conditions in Ontario and Québec remain solid and would allow LPLP to sell its low-cost production at reasonable margins if the Company’s contracts that are currently in place were terminated. Further, LPLP’s cost-competitive production can sustain extreme market downside scenarios and generate sufficient cash flow to cover both debt service and maintenance capex even with market power prices as low as $21 per megawatt hour (MWh).

Hydrology and market price risks constrain the rating to the current level. Downward fluctuations in hydrology can occur from time to time in the normal course of the Project’s operation. Refinancing risk is mitigated by the long-life nature of LPLP’s hydroelectric generation assets and sustainable strength in the Project’s economics. The regulatory environment in Ontario continues to evolve, but is expected to remain favourable for emission-free renewable energy producers like LPLP.

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

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