DBRS Assigns BBB Issuer and Debt Ratings, Stable Trends, to Seven Solar Power Projects Owned by Concord Solar Energy Inc.

DBRS Limited (DBRS) assigned the following ratings to seven issuers and their related term loans for solar power projects (the Projects) owned by Concord Solar Energy Inc. (CSEI):

(1) Concord MightySolar Partnership
-- Issuer Rating of BBB, Stable trend; and
-- Debt rating of BBB to $50.6 million Term Loan (Due 6/30/2033), Stable trend.

(2) Concord Val Caron Partnership
-- Issuer Rating of BBB, Stable trend; and
-- Debt rating of BBB to $47.8 million Term Loan (Due 3/31/2032), Stable trend.

(3) Concord RayLight Partnership
-- Issuer Rating of BBB, Stable trend; and
-- Debt rating of BBB to $51.4 million Term Loan (Due 9/30/2033), Stable trend.

(4) Concord Aria Partnership
-- Issuer Rating of BBB, Stable trend; and
-- Debt rating of BBB to $52.8 million Term Loan (Due 9/30/2034), Stable trend.

(5) Concord EarthLight Partnership
-- Issuer Rating of BBB, Stable trend; and
-- Debt rating of BBB to $53.9 million Term Loan (Due 9/30/2034), Stable trend.

(6) Concord Alfred Partnership
-- Issuer Rating of BBB, Stable trend; and
-- Debt rating of BBB to $60.3 million Term Loan (Due 3/31/2035), Stable trend.

(7) Concord BeamLight Partnership
-- Issuer Rating of BBB, Stable trend; and
-- Debt rating of BBB to $57.6 million Term Loan (Due 12/31/2034), Stable trend.

The Projects consist of seven solar power generation facilities ranging in size from nine to ten megawatts (alternate current) operating across Ontario since 2014–2015, depending on the Project. Each Project is contracted under 20-year feed-in-tariff power purchase agreement (PPA) with the Independent Electricity System Operator (rated A (high) with a Stable trend by DBRS) and connected to the Hydro One Network Inc. distribution system. The PPAs expire in 2034 and 2035, eight to 24 months after the full amortization of the term loans, depending on the Project.

All seven Projects have separate stand-alone term loans, but the same ownership. After a reorganization in January 2019, the 99.9% ownership held by general partners of all the individual Projects were transferred into a single entity, CSEI. As a result, the loans are linked by: the pledge of 100% of the equity interests in CSEI (which, in turn, owns 99.9% of all Projects) and the 0.1% owner of each of the Project partnerships; a cross default to any other outstanding debt; and a cross acceleration to the other term loans. Based on the cross default and cross acceleration, DBRS considers each Issuer Rating/debt rating to be capped by the weakest rating of the seven issuers and their related term loans. DBRS notes that lenders have the choice to exercise the cross default if a default occurs at one of the seven issuers (i.e., the cross default is not automatic to the other six Projects).

The assigned ratings are anchored by (1) the strength of the long-term, fixed-price PPAs with a highly rated offtaker extending at least six months beyond full debt amortization; (2) proven solar photovoltaic (PV) module technology and appropriate operating and maintenance arrangements with an experienced operator; (3) an enhanced project finance structure with features that include a comprehensive security package, segregated blocked accounts, a cash flow waterfall, debt service and maintenance reserves as well as restrictive covenants; and (4) minimum debt service coverage ratios (DSCRs) commensurate with the assigned ratings of 1.35 times (x) to 1.36x in the DBRS rating case, depending on the Project. The main constraints for the ratings include (1) cross default and acceleration of the loans, such that the ratings are capped by the weakest rating; (2) module degradation risk as is typical for solar PV projects; and (3) variability of the solar energy resource, such that lower-than-expected solar insolation and system performance can negatively affect revenue and cash flow.

Actual operating results for the Projects (two to three years, depending on which Projects) yield healthy DSCRs while showing variability typical for solar power projects.

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

The principal methodology is Rating Solar Power Projects, which can be found on dbrs.com under Methodologies & Criteria.

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

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

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