DBRS Requests Comment on Project Finance, PPP and Related Methodologies

DBRS is requesting comment on the five proposed methodologies listed below:

(1) Rating Project Finance
(2) Rating Public-Private Partnerships
(3) DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers
(4) Rating Wind Power Projects
(5) Rating Solar Power Projects

Comments should be received on or before September 30, 2018. Please submit your comments to the following email address: corporate_finance_comments@dbrs.com. DBRS publishes on its website all comments received except in cases where confidentiality is requested by the respondent.

DBRS has updated its project finance (PF), public-private partnership (PPP) and related methodologies. While DBRS considers that only the PF and PPP methodologies have material changes from the current published versions, it nonetheless is requesting comment on all five methodologies. Significant changes to these methodologies are summarized below:

(1) The PF and PPP methodologies have been re-written for greater clarity and now include a detailed flowchart of the rating process, a detailed summary table of key rating drivers, comments on the distinguishing features of investment-grade versus non-investment-grade transactions and a clearer layout overall. The wind and solar methodologies have been also revised to conform with these changes in the PF methodology.

(2) The proposed PPP methodology notes that the rating of a PPP transaction is typically lower than the rating of the public-sector counterparty (whereas in the current published PPP methodology, the rating of the public-sector counterparty is expected to be at least two notches higher than the rating of the project). For project financings, however, the rating of a project financing may, in certain cases (e.g., where a project has a superior market-based competitive position), exceed the rating of the revenue offtaker.

(3) The proposed PF and PPP methodologies also note that DBRS expects that the ratings of financing parties, letter of credit providers, account banks and lending syndicate members will be at least A (low) at financial close. Where this is not the case, downward rating pressure may apply.

(4) In regard to issuer ratings and recovery ratings, PF and PPP transactions will now be assigned an issuer rating, typically equal to the rating of the most senior debt tranche of the transaction. For issuers with non-investment-grade ratings, a recovery rating will also be assigned, which may result in notching up or down of the issuer rating for the specific instrument rating in accordance with the proposed “DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers.” This change expands the application of recovery ratings beyond the traditional corporate sectors.

(5) The PPP methodology, which in the past had been primarily oriented toward availability PPPs, now includes a detailed appendix outlining how DBRS assesses PPP transactions with volume risk (e.g., toll roads and managed lane projects).

(6) The PPP methodology also now provides additional detail on how DBRS assesses certain risks during the construction phase associated with light-rail transit supplier and related issues and presents revised construction contract liability caps as well as inflation resilience expectations.

DBRS expects that there may be a single one-notch upgrade to one existing publicly rated PPP transaction resulting from the proposed changes to the PPP methodology once the PPP methodology is in final form after the close of the comment period. DBRS does not, however, believe that any project finance, wind, solar or recovery rating will change.

Notes:
The methodology providing DBRS’s processes and criteria is available 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.