DBRS Confirms Rating on Northland Power Solar Finance One L.P. at BBB (high), Stable

DBRS Limited (DBRS) has today confirmed its rating of BBB (high) with a Stable trend on the Series A Senior Secured Amortizing Bonds (the Bonds) due June 30, 2032, of Northland Power Solar Finance One L.P. (ProjectCo or the Issuer). The obligations of ProjectCo under the Bonds are guaranteed on a joint and several basis by the six project limited partnerships (Project LPs). The Project LPs are six operating solar power project sites with a contracted generation capacity of 10 megawatts (MW) each, or a total of 60 MW, located across Ontario (together, the Facilities or the Project). Each facility benefits from fully contracted power prices at above-market rates (44.3 cents per kilowatt hour) under 20-year feed-in-tariff contracts with the Independent Electricity System Operator (rated A (high) with a Stable trend by DBRS) and is connected to Hydro One Networks Inc.’s low-voltage distribution system under separate and identical connection agreements. This configuration is considered credit positive as the Facilities are not subject to curtailment risk.

The Facilities achieved commercial operations between June 2013 and September 2013. Based on a review of the Project’s 18-month operating performance to June 30, 2015, the Facilities exceeded DBRS base-case estimates. The actual energy generated over the review period exceeded degradation-adjusted DBRS base-case at P90 levels by 7%. Normalized trailing 12 month debt service coverage ratio (DSCR) of 1.71 times (x) to June 30, 2015, was also higher than the DBRS base case of 1.57x as ProjectCo’s cash flow benefited from both higher-than-expected revenues and lower-than-budgeted operating expenses. Nonetheless, DBRS does not consider that the 18 to 21 months’ operating data, albeit robust, necessarily indicate higher production levels in the future. The rating is constrained by (i) solar panel degradation risk and (ii) the relatively weak credit metrics of the solar panel supplier that provides a 25-year power output warranty for each of the Project LPs; however, these risks are partially mitigated by structural enhancements, including panel degradation reserve accounts.

The BBB (high) rating is supported by ProjectCo’s higher-than-average base-case DSCR within its rating category. DBRS’s sensitivity analysis shows that the Facilities have robust resiliencies and can withstand a range of downside risks, including a panel degradation of 3.22% per year, while still servicing debt obligations. The DSCR also provides sufficient protection against variability in solar resource as well as operating and maintenance cost inflation. DBRS views the Issuer’s structure and key contract terms to be supportive of its rating.

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 Solar Power Projects, which can be found on our website under Methodologies.