DBRS Confirms Pingston Power Inc. Series 1 Bonds at A (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the rating on the Senior Secured Bonds Series 1 (the Bonds) issued by Pingston Power Inc. (Pingston or the Project) at A (high) with Stable trend. There is no change to the rating, given refinancing of the bonds is imminent and there are no additional interest payments due.

The Project is supported by a power purchase agreement (PPA) with British Columbia Hydro & Power Authority (BC Hydro, rated AA (high) with a Stable trend). The PPA provides for inflation-adjusted fixed pricing and has a term through 2023.

The $70 million senior secured Bonds mature on February 11, 2015. Since the Bonds do not amortize, there will be a refinancing upon maturity. DBRS believes that refinancing risk is considered low, considering the short period remaining to bond maturity and that no additional interest payments are due; the economic value of the asset, given the underlying contract maturity in 2023; and the sponsors’ strengths and track record. This is the primary reason for confirmation of the rating. The rating does not reflect any post-refinancing credit quality and relates only to the current outstanding Series 1 Bonds.

Hydrology continues to be lower than the projected long-term average generation (LTAG) of 179 GWh (which was based on 25-year of hydrology data). Since 2006, hydrology has been showing a downward trend. Since 2006, generation was below the LTAG for all years except 2007 and 2008. For the last 12 months ended September 30, 2014, hydrology reached 148 GWh. Interest cover ratio for last 12 months ending September 30, 2014, was 1.63 times (x).

DBRS believes that any subsequent refinancing is unlikely to achieve the current rating of the Series 1 Bonds, considering (1) the relatively short PPA contract remaining, (2) hydrology underperformance and (3) lack of bankruptcy remoteness of the current ownership structure.

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 (August 2014), which can be found on our website under Methodologies.

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