Morningstar DBRS Changes Trends on Grand Renewable Solar LP to Positive From Stable; Confirms Credit Ratings at BBB

DBRS Limited (Morningstar DBRS) confirmed Grand Renewable Solar LP's (ProjectCo) Issuer Rating and the credit ratings on the 3.926% Series 1A-2016 Senior Secured Notes and 3.926% Series 1B-2016 Senior Secured Notes (collectively, the Notes) at BBB. Morningstar DBRS also changed the trends to Positive from Stable. The confirmation of the credit ratings and the Positive trends reflect ProjectCo's sustained strong operating and financial performance since 2020, and Morningstar DBRS' expectation for strong debt service coverage ratios (DSCRs) going forward.

ProjectCo, a special-purpose vehicle, owns and operates a 100-megawatt alternating-current, ground-mounted solar photovoltaic (PV) generation facility; it also owns a 50% interest in the associated 20-kilometre transmission facilities connecting the PV facility to Hydro One Networks Inc.'s electricity grid (collectively, the Project). ProjectCo sells all generated electricity to the Independent Electricity System Operator (IESO) under a 20-year fixed-price power purchase agreement (PPA) until March 30, 2035. The off-taker, IESO, has a strong credit quality that does not constrain ProjectCo's credit ratings. The pari passu Notes (with an outstanding balance of approximately $360.7 million as of January 31, 2025) will fully amortize by the January 31, 2035, maturity date.

KEY CREDIT RATING CONSIDERATIONS
The Project has more than 10 years of stable operating history. For the 12-month periods ended January 31, 2025, and April 30, 2025, the DSCRs were 1.45 times (x) and 1.43x, respectively, comfortably higher than the 1.40x in the credit rating case. The Project's 12-month actual generation represented 100.2% of the P90 level (the credit rating case) and 94.5% of the P50 level for full-year 2024, which was slightly lower than the generation in 2023. It was mainly because of snow cover during the winter months and lower availability rate as a result of several planned Hydro One outages happened in 2024.

There were some notable excluded services expenses in 2024, which led to the higher total operating costs. However, the largest portion was one-time repairs and maintenance costs that are not expected to repeat in 2025. Morningstar DBRS notes that even with the negative impacts from Hydro One outages and one-time costs, the 2024 DSCR was still strong and higher than Morningstar DBRS' P90 credit rating case.

In June 2024, ProjectCo entered into a new five-year O&M agreement with EPTCON Ltd., with a one-year extension option, replacing SMA Solar Technology AG as the O&M service provider. The O&M agreement was negotiated at a lower fixed price, which is expected to have a slightly positive impact on the overall performance in the following years. Morningstar DBRS notes that there are no material changes in the scope of the O&M agreement.

Approximately 44,000 modules (10% of total modules) were identified as exhibiting flaking and cracking issues in the back-sheet material after a site-wide review in Q2 2023. Performance has not yet been affected, but could eventually if the modules are not repaired or replaced. Canadian Solar Inc. (CSI), the module manufacturer, is responsible under the warranty. CSI has acknowledged the claim and offered a cash settlement of $2.6 million under the warranty in 2025. ProjectCo and CSI are in commercial negotiations, which are expected to be resolved by the end of 2025. Morningstar DBRS expects this problem to be remedied at minimal cost to ProjectCo and the Project's performance to remain unaffected. However, CSI only provides a product warranty for 10 years which will expire soon. We will continue to closely monitor the back-sheet issues. Annual site testing has shown that cumulative degradation appears to be materially lower than the initial expectation.

CREDIT RATING DRIVERS
Morningstar DBRS may consider upgrading ProjectCo's credit ratings if the Project continues to outperform the credit rating case; A material and sustained underperformance of ProjectCo compared with the credit rating case (P90) could cause a negative credit rating action. This could be related to lower insolation, greater module degradation, increased operating expenses, or other negative factors.

FINANCIAL OUTLOOK
The 2025 operating budget is largely consistent with the original credit rating-case assumptions. Morningstar DBRS expects a constant DSCR of 1.40x in the P90 credit rating case.

CREDIT RATING RATIONALE
The credit ratings are underpinned by (1) a 20-year fixed-price PPA with the IESO, a high investment-grade off-taker; (2) limited operating risk is expected with proven technology; and (3) enhanced project finance structure. The credit ratings are constrained by (1) module degradation risk; (2) long-term warranty providers with relatively weak credit quality; and (3) revenue depends on a variable energy resource and the expected performance ratio.

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), https://dbrs.morningstar.com/research/454196.

CREDIT RATING DRIVERS AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of Credit Rating Driver Factors
In the analysis of the Issuer, the Credit Rating Drivers listed in the methodology were 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 (the only applicable FRA factor).

(C) Weighting of the Credit 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 ratings were initiated at the request of the rated entity.

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

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

These are solicited credit ratings.

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 600
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577