DBRS Confirms Lievre Power Financing Corporation at A (low), Stable

DBRS has today confirmed the rating of 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, supported by the power sales agreements in place through 2019. The contracts have reasonable credit quality, although the contract does not extend to the maturity of the Bonds.

The Project has a total capacity of 263 megawatts (MW) and long-term average generation (LTAG) of 1,521 gigawatt hours (GWh; 66% capacity factor) per year, which is expected to be sustainable for at least 40 years. The LTAG is reviewed and assessed by a qualified independent engineer (IE) every three years, according to the trust indenture. The most recent review was in 2011. A detailed 20-year capital expenditure (capex) plan and budget, also reviewed by the IE, is being carried out to ensure energy operating performance and the safety and useful life of the power generation assets.

Hydrology risk remains a main rating constraint, as downward fluctuations in hydrology can occur in the normal course of the Project’s operation. The reservoir capacity helps regulate hydrology variability and provides for operational flexibility. The contract prices provide strong revenue projections and offset some of the impact of weaker hydrology and production. As a result, cash flow coverage for interest and the capex remained at nearly five times in the most recently reported 12-month period ended September 30, 2012, despite production being 73% of LTAG due to weaker hydrology. In addition, the debt service and hydrology reserves can provide temporary liquidity for debt obligations during short periods of poor generation output and insufficient cash flow.

Refinancing risk is mitigated by the long asset life of LPLP’s hydroelectric generation facilities and sustainable strength in the Project’s economics. The regulatory environment is expected to remain favourable for emission-free renewable energy.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

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.