DBRS Confirms Mississagi Power Trust at A (low)

DBRS has today confirmed the rating on the $175 million Senior Secured Bonds (the Bonds) of Mississagi Power Trust (MPT or the Company) at A (low) with a Stable trend. The rating reflects the credit quality of MPT’s hydroelectric power generating assets (the Project) based on energy sales contracts, storage capacity, dispatch flexibility and reliable operating performance. The sales contract is guaranteed by Brookfield Renewable Power Inc. (BRPI), which, in turn, has a 20-year sale agreement through 2029 to sell power to the Ontario Power Authority (OPA; rated A (high) with a Stable trend), providing support to BRPI’s commitment to purchase power from various projects in Ontario, including MPT.

The rating is based on robust debt service coverage under the BRPI contract and the indirect support of the OPA’s contract with BRPI. The debt service coverage ratio (DSCR) for the last 12 months (LTM) Q1 2013 remains consistent with the current rating category, despite record low hydrology. Hydrology is the main risk constraining the rating. Water flow and production have been markedly lower than the expected long-term average generation (LTAG) in recent years.

The historical LTAG based on 45-year data is 722 gigawatt hours (GWh) per year. Hydrology and production for LTM Q2 2013 recovered to an estimated 488 GWh from 354 GWh in LTM Q1 2013. While hydrology and generation were weak for LTM Q1 2013, the DSCR was 2.1x, which remained adequate for the current rating. Production can fall as low 233 GWh (or 68% below LTAG) and the DSCR is still 1.0x. The Project also has a six-month debt service reserve as well as a hydrology reserve of up to $10 million, providing additional protection against hydrology risk. Nevertheless, there could be rating implications, should the DSCR persist below 2.0x for consecutive years due to weak hydrology or other issues.

The Bonds mature in 2020. Refinancing risk is mitigated by the long-life nature of the hydroelectric assets and sustainable strength in the Project economics. The independent engineer (IE; Hatch Ltd.) reviews and approves a detailed 15-year capital plan and budgets. The Project is required to follow this spending and investment plan to ensure the long-term energy production, operating efficiency, safety and useful life of the power generation assets.

The IE updates and assesses the hydrology and asset conditions every five years. The next IE review is due by the end of this year. Regulatory risk is limited as the policy environment is expected to remain favourable for emission-free hydroelectric power producers like MPT.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Project Finance, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.