DBRS Notes Name Change: Brookfield Power Inc. and Brookfield Power Corp. Now Brookfield Renewable Power Inc. (BRP), Trend Stable

DBRS has today recognized a formal name change whereby Brookfield Power Inc. (BPI) and Brookfield Power Corporation (BPC) have been amalgamated as the entity Brookfield Renewable Power Inc. (BRP or the Company). All DBRS ratings on listed securities from BPI and BPC have therefore been transferred to the new entity. The prior Issuer Rating on BPI was not transferred to BRP, as this rating was only previously used to ensure clarity regarding BPI’s guarantee of BPC’s obligations; with the amalgamated BRP, the Issuer Rating is no longer needed. To ensure clarity, we have made these changes through the process of discontinuing the prior ratings for BPI and BPC and assigning new ratings to BRP. All ratings have Stable trends. These actions remove the ratings from Under Review with Developing Implications, where they were placed on April 2, 2008, following the announcement that BPI and BPC had amalgamated into one entity, BRP, and that BRP had assumed all of BPI’s and BPC’s existing obligations.

While DBRS did not anticipate that the amalgamation would impact the credit quality of BPC’s public Debentures and Notes, all ratings were placed Under Review with Developing Implications pending a full review of the amalgamation documentation and the impact (if any) on BRP’s financial position and credit metrics. DBRS has concluded its review and is satisfied that the transaction has not impacted the creditworthiness of BRP.

BRP has expanded its power asset base significantly over the past few years as numerous acquisitions have increased capacity from approximately 900 MW (net 680 MW) in 2000 to the current 3,562 MW (net 2,655 MW). The Company’s acquisitions have lead to greater operational and geographical diversification, which helps mitigate the risk of extended plant outages and poor hydrology in any specific watershed. In 2007, the capacity growth, together with higher realized prices, partially offset lower power generation due to poor hydrology. The actual generation was 92% of the expected long-term average (LTA). However, DBRS notes that production improved in the first quarter of 2008.

The Company has long-term power purchase agreements covering about half of its expected power generation and shorter-term contracts for approximately one-quarter of production, insulating a core stream of cash flow from power market risk. The non-contracted portion will allow BRP to use the flexibility of its reservoir capacity and the low-cost position of its operation to capture value in the spot market.

The Company’s leverage on a consolidated basis has increased from the mid-60% range to close to 70% currently (DBRS-adjusted), almost exclusively due to the addition of non-recourse project level debt coupled with moderate amounts of corporate-level debt, which results in a shift of business risk (from the perspective of a BRP creditor) from BRP to the individually-financed projects, but does increase subordination. The key credit metrics (all DBRS estimates) supporting the rating profile are based on BRP from a deconsolidated view, with BRP-level debt-to-capital at 29% including the equity added in January 2008, adjusted deconsolidated interest coverage of 4.1x, and deconsolidated cash flow-to-corporate debt of 27%. Given the current level of consolidated debt, DBRS would expect any future material acquisitions to be permanently funded with a mix of internal cash flow, non-recourse project level debt and/or equity.

BRP’s ratings remain primarily constrained by two factors, both of which can create volatility in earnings and cash flows: (1) Production volume risk due to variability in hydrological conditions, and (2) Volatility in wholesale power prices as the Company has some revenue exposure to spot market sales and shorter-term contracts.

In April 2008 BRP acquired a contracted 156 MW hydroelectric generation facility in Brazil for $288 million. Given BRP’s and parent Brookfield Asset Management’s (BAM) long history and experience in Brazil, and the modest size of the transaction, the acquisition is not viewed as having a material impact on the Company’s credit profile, although the increasing exposure to Brazil (rated BB (high) with a Positive trend), while modest, does introduce new risks (political, currency, etc.). BRP has also stated its intention to eventually acquire all of BAM’s Brazilian hydroelectric generation assets (currently totalling 314 MW). DBRS would assess the impact of such a transaction, if it proceeds, as more information becomes available.

Note:
All figures are in U.S. dollars unless otherwise noted.