DBRS Confirms Rating on Melancthon Wolfe Wind LP’s Series 1 Senior Amortizing Bonds at BBB, Stable Trend

DBRS Limited (DBRS) has today confirmed the BBB rating 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). The Issuer is a special-purpose entity created to own and operate a wind power portfolio with a total generating capacity of 397.3 megawatts located in Ontario (the Project). The Issuer is indirectly and wholly owned by Canadian Hydro Developers, Inc. (rated BBB with a Stable trend by DBRS) which, in turn, is indirectly owned by TransAlta Corporation (TAC; rated BBB with a Negative trend by DBRS).

The Project encompasses three wind farms: Wolfe Island, Melancthon I and Melancthon II with a capacity-weighted average life of eight years by utilizing both GE and Siemens turbines. All electricity generated is sold to the Independent Electricity System Operator (IESO; rated A (high) with a Stable trend by DBRS) under three separate 20-year inflation-adjusted fixed-price power purchase agreements (PPAs). The Bonds will be fully amortized six months prior to the last PPA’s expiry date.

Operating performance in 2015 and 2016 has largely met expectations. Generation in 2015, matching the P50 forecast, was more than 10% higher than the P90 rating-case level. For 2016, management forecasts a debt service coverage (DSCR) of 1.46 times (x); DBRS expects that generation will range between P90 and P75 levels and that the resultant DSCR will be between 1.35x and 1.43x, excluding one-time capital expenditures of $2.0 million. The expected DSCR levels continue to support the rating.

The BBB rating is underpinned by the strength of the fixed-price PPAs with the IESO, the Project’s good and consistent operating track record as well as the experienced owner-operator, TAC. The rating is constrained by potential cost increases as the facilities continue to age and generation variability. The rating-case DSCR of 1.35x is relatively low, but is considered sufficient for the BBB rating, given the low uncertainty surrounding the wind resource assessment derived from historical production.

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

PXX means exceedance probabilities. A P50-P75-P90-P99 value describes estimated minimum electricity generation with a probability of 50%, 75%, 90% or 99% in any given year. Unless otherwise specified, all PXX values in this report are in reference to one-year PXX values, adjusted by DBRS.

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.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.