DBRS Confirms Pingston Power Inc. at A (high), Stable Trend

DBRS has today confirmed the rating on the Senior Secured Bonds (the Bonds) of Pingston Power Inc. (Pingston or the Project) at A (high) with a Stable trend. The rating is supported by a power purchase agreement (PPA) with British Columbia Hydro & Power Authority (BC Hydro, rated AA (high) with a Stable trend), under which Pingston sells all its energy production to BC Hydro at an inflation-adjusted fixed price through 2023.

The rating continues to be constrained by hydrology risk and operating risk. As a run-of-river hydroelectric plant, Pingston’s energy production and PPA cash flow are subject to the seasonal and yearly variability of water flow. However, the potential risks of low water flow are mitigated by three factors: (1) the Project’s summer production and cash flow are sufficiently robust to ensure that Bond payments would not be affected if one unit were out of service for the entire summer; (2) the PPA with BC Hydro has no requirement of minimum energy delivery; and (3) debt service reserve (DSR) equals six months of payments on the Bonds.

Energy production in the last 12-month period ended Q1 2012 was 162 GWh, below the expected long-term average (LTA) of 179 GWh but above the minimum level of 93 GWh necessary to achieve 1.0 times coverage for the Bond payments. The interest coverage ratio remained acceptable for the current rating category. As a relatively new facility with reasonably stabilized operating performance, the Project requires negligible capital expenditures (capex) in the near to medium term.

Refinancing risk due to the non-amortizing structure of the Bonds is mitigated by the long-term value of the Project’s low-cost energy production, as well as the PPA with a strong offtaker and a term extending eight years beyond the maturity of the Bonds.

Pingston’s operating performance is adequate for the current rating category and has been stable in the past few years. The independent engineer’s (IE) study was updated in 2010, with the results supporting the current performance level. The base case hydrology and production levels were confirmed at 179 GWh, supported by performance data compiled since commercial operation. The report will be updated again in 2013, as required by the indenture.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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