DBRS Finalizes Provisional Rating on BBB for Melancthon Wolfe Wind LP

DBRS Limited (DBRS) has today finalized its provisional rating of BBB with a Stable trend on the 3.834% Series 1 Senior Amortizing Bonds due December 31, 2028 (the Bonds) issued by Melancthon Wolfe Wind LP (the Issuer) for the purpose of refinancing its operating wind assets. The Issuer is a special-purpose entity created to own and operate a portfolio of three wind farms with a total generating capacity of 397.3 megawatts (MW) located in Ontario (the Project). The Issuer is indirectly and wholly owned by Canadian Hydro Developers Inc. (rated BBB), which in turn is indirectly owned by TransAlta Corporation (rated BBB).

The Project comprises three wind farms: Wolfe Island, Melancthon I and Melancthon II. Wolfe Island is located off the shore of Kingston, Ontario, and began commercial operation in June 2009 with a capacity of 197.8 MW and uses 86 Siemens wind turbines. Melancthon I, the first phase of the Melancthon wind farm located in southern Ontario, reached commercial operation in March 2006. Phase I has a capacity of 67.5 MW and uses 45 General Electric (GE) wind turbines. Phase II of the Melancthon wind farm has a capacity of 132.0 MW and uses 88 GE wind turbines. Phase II began commercial operations in November 2008.

All energy generated by the three wind farms is sold to the Independent Electricity System Operator (rated A (high) with a Stable trend) under three separate 20-year fixed-price power purchase agreements (PPA). The Melancthon I PPA is a Renewable Energy Supply Contract and expires in March 2026. The Melancthon II and Wolfe Island wind farms are contracted under two separate Renewable Energy Supply II Contracts which expire November 2028 and June 2029, respectively. The Bonds amortize in full six months prior to the expiry of the last PPA expiry date.

Typically, the key credit risk facing wind projects is the availability of wind resources and the accuracy in estimating the energy production forecast. Since the wind farms have significant operating history (nine years in the case of Melancthon I and over six years for Melancthon II and Wolfe Island), the primary credit focus is on their actual performance as well as their condition. An Independent Engineer (IE), GL Garrad Hassan, Inc., performed an in-depth assessment of the condition and operating history of each wind farm. Included in the assessment was a review of the energy assessment conducted by WSP Inc. (WSP). The IE concluded that while WSP’s methodology and approach may differ, the net P50 and P90 results estimated by WSP are both reasonable and acceptable. Over the history of their operations, the wind farms have been consistently performing at reasonably high availability levels.

The financial profile based on DBRS’s rating case of one-year P90 generation has been sculpted to achieve a minimum debt service coverage ratio of 1.35 times, which is supportive of the BBB rating.

Notes:
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.

The applicable methodology is Rating Wind Power Projects, which can be found on our website under Methodologies.

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

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.