DBRS Confirms Mississagi Power Trust Senior Secured Bonds at A (low), Stable

DBRS Limited (DBRS) has today confirmed the rating on the $175 million 6.917% Senior Secured Bonds (the Bonds) of Mississagi Power Trust (MPT) at A (low) with a Stable trend. The rating reflects the credit quality of MPT’s hydroelectric power generat¬ing assets (the Project) based on energy sales contracts, storage capacity, dispatch flexibility and reliable operating performance. All energy production is sold under a 20-year Master Power Pur¬chase and Sale Agreement (MPPS) expiring in 2029 with Brook¬field Energy Marketing LP that provides the Project with an attractive contract price of about $104 per megawatt hour (MWh) in 2014 (adjusted for inflation). The MPPS contract obligations are fully guaranteed by Brookfield Renewable Power Inc. Both Brookfield entities are unrated.

The rating on a power generation project is typically limited by the credit quality of the counterparty of its power purchase agreement (in this case, the MPPS) unless the project demon¬strates a superior market-based competitive position in the ab¬sence of support from that agreement. To assess MPT’s overall credit strength, DBRS considered MPT’s performance under a contracted basis and on a hypothetical merchant basis. DBRS is of the opinion that MPT has a reasonably strong competitive market position, is not completely reliant on its offtaker and would likely continue to service its debt obligations by selling electricity on a merchant basis. On a hypothetical merchant ba¬sis, MPT would require realized average prices of above $31.7/MWh to maintain an interest coverage ratio (ICR) of above 1.00 times (x) under average generation of 750 gigawatt hours (GWh). DBRS will continue to monitor relevant wholesale power pric¬es and a rating action could be taken if prices drop to a point at which MPT’s competitive market position declines.

Hydrology remains the main risk for the Project. Water flow and production have frequently been lower than the expected long-term average generation (LTAG) of 750 GWh per year. In 2013, hydrology and production recovered to an estimated 897 GWh from 416 GWh in 2012. For the 12 months ending Septem¬ber 30, 2014, ICR improved to 6.61x compared with 4.55x for the same period last year.

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