DBRS Confirms Brookfield Renewable Power Fund (BRPF) at BBB (high), Trend Stable

DBRS has today confirmed the Issuer Rating of Brookfield Renewable Power Fund (BRPF or the Fund) at BBB (high), and the rating of Brookfield Renewable Power Preferred Equity Inc.’s (Finco) $250 million of 5.25% Preferred Shares, Series 1 at Pfd-3 (high). Both trends are Stable. The Fund’s rating reflects the strong financial profile and modest business risk of its renewable power generating business, while the Finco rating is based on the subordinated guarantee of the Fund.

The Fund has a renewable power generating portfolio totalling 1,703 megawatts (MW), the majority of which are hydroelectric, with hydrology risk somewhat mitigated by geographic diversity. Almost all energy production is sold under longer-term contracts or price guarantees, minimizing exposure to market price risk. These factors and the Fund’s solid operating performance are expected to result in a stable financial profile, with any variability largely due to hydrological conditions.

Results in 2010 reflected the effects of these key factors. Production in Québec and Ontario was lower due to weak hydrology in Q2 2010 and Q3 2010, although Q4 2010 production recovered to the long-term average level. The negative effects of weaker hydrology and production were partially offset by higher contract sale prices, as well as the addition of new assets. As a result, revenues, EBITDA and coverage ratios were below what would be expected under long-term average hydrology.

The ratings continue to be constrained by the above-mentioned factors. While the Fund does have some geographic diversification, there will be volatility in its production and financial results due to variable hydrology. The Fund has a close relationship with Brookfield Renewable Power Inc. (BRP; rated BBB (high)), its majority unitholder. BRP, as the largest owner with 34% of Fund’s units, is the manager and administrator of the Fund, as well as the counterparty on a large majority of the Fund’s contracts. BRP has a long-term power sales contract with the Ontario Power Authority (rated A (high)) covering the Fund’s Ontario-based production, which mitigates some of the concern about the Fund’s exposure to BRP. Additionally, while the use of non-recourse asset-level debt segments risk, it also subordinates obligations of the Fund to the substantial asset-level debts.

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

The Preferred Shares, Series 1 of Brookfield Renewable Power Preferred Equity Inc. are guaranteed by Brookfield Renewable Power Fund on a subordinated basis.

The applicable methodology is Rating Companies in the Non-Regulated Electric Generation Industry, which can be found on our website under Methodologies.