Morningstar DBRS Confirms Spy Hill Power L.P.'s Issuer Rating and Series A Senior Secured Amortizing Bonds at "A," Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Spy Hill Power L.P.'s (the Issuer) Issuer Rating and Series A Senior Secured Amortizing Bonds (the Bonds) rating at "A", both with Stable trends. The Issuer is a special-purpose entity that owns a simple-cycle natural gas-fired 86-megawatt power generation facility (the Project). The credit rating confirmations reflect the Project's current stable operating and financial performance and expectations of continued stable performance in 2025 and beyond.

KEY CREDIT RATING CONSIDERATIONS
In 2024, the Project's performance was in line with projections and the debt service coverage ratio (DSCR) was 1.69 times (x). Project availability was high at 99.3%. There were no material operational issues in 2024 and to date. In 2024, the Project's approximately 3,861 operating hours (44% annualized) were much higher than budgeted and compared with historical fired hours. Increased operating hours can cause higher wear and tear. The Issuer receives an O&M tariff, which is intended to cover future costs related to wear and tear. Further, there is no material impact on the Project's revenues as they are largely driven by availability rather than generation hours. Morningstar DBRS notes that the offtaker, Saskatchewan Power Corporation (SaskPower), has provided the Issuer updated operating hour projections, which, when modeled, show that no major maintenance is expected during the power purchase agreement (PPA). However, Morningstar DBRS will continue to monitor dispatch levels and any indications of increased maintenance costs/reduced availability caused by increased maintenance downtime that could affect DSCR levels.

CREDIT RATING DRIVERS
Morningstar DBRS may take a negative credit rating action if material operational issues occur, actual financial results are lower than expectations on a consistent basis, and/or the major maintenance account is underfunded. Morningstar DBRS considers a positive credit rating action unlikely given the current financial projections.

FINANCIAL OUTLOOK
In 2025, the financial performance is expected to be stable with DSCR to be around 1.57x because of higher operating expenses resulting from planned gas turbine maintenance. Beyond 2025, the DSCR is projected to be in line with expectations.

CREDIT RATING RATIONALE
The credit ratings remain supported by (1) the long-term PPA with a creditworthy counterparty; (2) transfer of fuel, volume, and market risks to the offtaker; (3) a capable sponsor; and (4) structural enhancements. The credit ratings are constrained by (1) availability, operations, and maintenance risk; (2) higher-than-expected dispatch levels that could pressure future operations and capital expenditures; and (3) geotechnical risk related to subsidence.

The Issuer benefits from a 25-year PPA with SaskPower to provide electrical power to SaskPower's transmission system. At this time, Morningstar DBRS does not consider SaskPower's current rating status as constraining either the Issuer Rating or the Bonds rating. The Bonds are fully amortizing with maturity on March 31, 2036, six months prior to the PPA's expiry.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) at https://dbrs.morningstar.com/research/454196

CREDIT RATING DRIVERS AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of Credit Rating Drivers
In the analysis of the Issuer, the Credit Rating Driver factors listed in the methodology are considered in the order of importance.

(B) Weighting of FRA Factors
In the analysis of the Issuer, the following FRA factor listed in the methodology was considered more important:
-- DSCR (this is the only applicable factor).

(C) Weighting the RATING DRIVERS and the FRA
In the analysis of the Issuer, the FRA carries greater weight than the Credit Rating Drivers.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Project Finance (December 10, 2024), https://dbrs.morningstar.com/research/444393

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025), https://dbrs.morningstar.com/research/447186 which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577