DBRS Assigns BBB Ratings to Grand Renewable Solar LP’s Senior Secured Notes, Stable Trend

DBRS Limited (DBRS) has today assigned a rating of BBB with a Stable trend to both the 3.926% Series 1A-2016 Senior Secured Notes and the 3.926% Series 1B-2016 Senior Secured Notes (collectively, the Notes) issued by Grand Renewable Solar LP (ProjectCo or the Issuer). Both tranches are denominated in Canadian dollars and rank equally under the Trust Indenture. The Notes of $612.705 million in aggregate are to be fully amortized by the January 31, 2035, maturity date. Proceeds from the Notes issuance will be used to repay existing bank debt (including swap breakage fees), make equity distributions and pay transaction and other expenses.

ProjectCo, a special-purpose vehicle, owns and operates a 100-megawatt alternating current ground-mounted solar photovoltaic (PV) generation facility in Haldimand County, Ontario. It also owns a 50% interest in a 20-kilometre transmission line and related facilities that connect the solar PV facility to Hydro One Networks Inc.’s electricity grid (collectively, the Project or the Facility). ProjectCo sells all electricity generated to the Independent Electricity System Operator (rated A (high) by DBRS) under a 20-year, fixed-price power purchase agreement (PPA) until March 30, 2035, two months after the Notes mature. The Project has had 13 months of operating data since achieving its March 31, 2015, commercial operation date.

The rating is supported by (1) the strength of the 20-year fixed-price PPA with a highly rated offtaker, (2) the limited operating risk expected with proven technology and (3) an enhanced project finance structure. The rating is constrained by (1) the long-term module degradation risk, (2) exposure to long-term warranty providers with relatively weak credit quality and (3) revenue depending on a variable energy resource and the expected performance ratio. Nonetheless, these risks are partially mitigated by the conservative P90 (see below) rating-case projections and a reserving remediation mechanism in case the modules degrade faster than expected.

DBRS projects a constant debt service coverage ratio (DSCR) of 1.40 times (x) in its P90 rating case for the term of the Notes. In contrast, the P50 DSCR would be higher at 1.49x. The sensitivity analysis demonstrates cash flow resiliency to a variety of risk factors, such as lower-than-expected solar resource or plant availability, and higher-than-expected operating costs, inflation or degradation. Given a stressed P99 scenario, the DSCR is reasonably resilient at 1.32x.

According to the 13-month operating data to April 30, 2016, the overall performance meets the P90 rating-case expectations. Actual generation represents 101.2% and 95.5% of the P90 and P50 levels, respectively. Assuming on-budget operating costs, the implied DSCR is 1.42x versus 1.40x in the rating case. Nonetheless, DBRS cannot predict with certainty whether the Project’s long-term performance can match expectations given its short operating history and Ontario’s volatile winter weather conditions.

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

PXX means exceedance probabilities. A P50-P90-P99 value describes estimated minimum electricity generation with a probability of 50%, 90% or 99% in any given year (P50, 1-year P90 and 1-year P99). Unless otherwise specified, all PXX values in the press release are in reference to one-year PXX values, adjusted by DBRS, considering availability, degradation and curtailment factors.

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