DBRS Downgrades Cory Cogeneration Funding Corporation to BBB (high), Negative Trend

DBRS has downgraded the ratings on the Senior Secured Project Bonds (the Bonds) of Cory Cogeneration Funding Corporation (CCFC or the Issuer). The Negative trend remains in place. This rating action reflects the lower-than-expected operating and financial performances over the last five years and DBRS’s expectation that financial performance is unlikely to recover to levels consistent with an “A” rating category. The Negative trend is expected to continue while significant volatility remains in the level of payments for the major maintenance of the combustion turbines. DBRS generally expects that Negative trend situations are resolved, which could either be with a reversion to Stable or with a further rating downgrade within 12 months of the initial trend change (i.e., in this case, by the end of January 2015).

The Issuer is a single-purpose financing entity for the Cory Cogeneration Station (the Project), a 228 megawatt (MW) to 260 MW natural gas-fired cogeneration facility. The Bonds are secured by the Project. The rating benefits from a 25-year power purchase agreement with the Saskatchewan Power Corporation (SaskPower; rated AA with a Stable trend by DBRS) expiring in January 2028, which is beyond the Bond maturity. The Project is a joint venture of SaskPower International Inc. and ATCO Power Canada Ltd.

The debt service coverage ratio (DSCR) for the last 12 months ended June 30, 2014, as disclosed in the quarterly compliance certificate was 1.19 times (x). The average DSCR in the period of January 2010 to June 2014 is 1.30x. The weaker-than-expected performance is mainly a result of higher operating and maintenance costs. Although performance is expected to slightly improve in 2014 and 2015 because of reduced scheduled maintenance, DBRS expects that the next major maintenance activities in 2016 and 2017 will push the annual DSCRs to 1.14x and 1.24x, respectively.

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.

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

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

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