DBRS Confirms St. Clair Holding, ULC at BBB, Stable

DBRS Limited (DBRS) has confirmed the Senior Secured Notes (the Notes) of St. Clair Holding, ULC at BBB with a Stable trend. The St. Clair Canadian entities, including the Issuer, underwent a restructuring and were converted into tax-efficient structures effective June 13, 2014. As a result, the Issuer has changed its legal name from St. Clair Holding, Inc. to St. Clair Holding, ULC (ProjectCo or the Issuer). ProjectCo indirectly owns Moore Solar LP (Moore) and Sombra Solar LP (Sombra), separate solar power project sites in St. Clair, Ontario (together, the Project), each with a nameplate generation capacity of 20 megawatts (MW).

ProjectCo benefits from attractive long-term contracted power prices under four 10 MW Renewable Energy Standard Offer Program power purchase agreements with the Ontario Power Authority (rated A (high), Stable by DBRS), maturing in February 2032.

The Project has been in operation since February 2012 when NextEra Energy Resources, LLC acquired Moore and Sombra from First Solar Development (Canada) Inc. For 2013 and H1 2014, ProjectCo has performed better than estimates. Debt service coverage ratio was 1.62 times (x) for 2013 and 1.61x for the trailing 12 months ending June 30, 2014, versus the projected 1.4x. The higher coverage ratios in 2013 were primarily because of lower operating expenses and increased revenues from higher generation. Generation for 2013 was about 4.4% higher than the DBRS P90 generation estimates but lower than the DBRS P50 levels. For the H1 2014, performance was position with generation exceeding the DBRS P90 levels by 9.9% and the DBRS P50 net generation estimates by 4.1%, after adjustments for availability and degradation rates. Although the 2014 results are inadequate to form long-term conclusions, DBRS notes that, ceteris paribus, sustained performance at or above the P50 levels could result in a positive rating impact in the future.

The rating continues to be constrained by the solar resource forecasting error and panel degradation risk. Solar resource forecasts were based on site data, correlated with multiple related solar databases. Despite some modest variance observed during the first year of operation (the teething year), the solar resource has been in line with or better than estimates.

ProjectCo uses First Solar, Inc. (First Solar) cadmium telluride photovoltaic thin film panels and Xantrex inverters. First Solar provides a warranty on panel performance at an annual degradation rate of 0.8% per annum (p.a.). The degradation risk can also be somewhat mitigated by the panel degradation reserve that would trap distributions as a result of an annual panel degradation test. The energy performance warranty test was successfully completed on February 27, 2014, with both sites comfortably meeting the target for the second year of operation and, as such, the test did not trigger any warranty claims or further action. Thus far, no contribution towards the degradation reserve was required. Break-even resilience for panel degradation, giving effect to the reserve, is relatively high at 2.6% p.a.

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 Solar Power Projects (January 2014), which can be found on our website under Methodologies.

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

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.