DBRS Comments on BREP’s Acquisition of 417 MW of Hydroelectric Assets in Pennsylvania

DBRS notes today that Brookfield Renewable Energy Partners L.P.’s (BREP or the Company; rated BBB (high)) planned acquisition of the Safe Harbor hydroelectric facility (the Acquisition) is not expected to have a material impact on its current credit rating. Given the Company’s track record of prudently financing acquisitions, DBRS expects BREP’s debt-to-capital ratio on a deconsolidated basis to remain below 20% post acquisition. In addition, the Company’s deconsolidated EBITDA-to-interest coverage and deconsolidated cash flow-to-debt ratios are expected to remain in line with its current rating category (7.5 times and 38%, respectively, for the 12 months ended September 30, 2013).

However, since the majority of Safe Harbor’s generation output is exposed to the merchant power market, the Acquisition is viewed as modestly negative for BREP’s business risk profile. Currently, BREP’s rating is underpinned by a highly contracted and diversified asset portfolio. As of December 31, 2013, BREP’s contracted output on a proportionate basis for 2014 stands at approximately 93%. Should contracted output fall below 80% due to the acquisition of additional merchant assets and/or the expiry of existing power contracts without proper hedging, the Company’s business risk profile could be negatively impacted.

The Acquisition consists of acquiring a 33% economic and 50% voting interest in the 417 megawatt (MW) Safe Harbor hydroelectric facility, located on the Susquehanna River in Pennsylvania. Safe Harbor generates approximately 1,100 gigawatt hours (GWh) annually, with significant storage capabilities allowing for daily peaking. The purchase price of the Acquisition is $289 million and it will be funded with the Company’s available liquidity, available capital from BREP’s institutional partners and non-recourse debt. The Acquisition is expected to close in the first quarter of 2014, subject to regulatory approvals.

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

The applicable methodology is Rating Companies in the Non-Regulated Electric Generation Industry (January 2014), which can be found on our website under Methodologies.