DBRS Confirms Cory Cogeneration Corp. at BBB (high) and Changes Trend to Stable

DBRS Limited (DBRS) has today confirmed the ratings on the Senior Secured Project Bonds (the Bonds) of Cory Cogeneration Funding Corporation (the Issuer). The trend has been changed to Stable from Negative. This change reflects the replacement of the Long Term Service Contract for the turbines that was expected to expire in 2017 (the Original LTSA). The new Long Term Parts & Long Term Service Contract (LTPSA), still with General Electric Canada and signed in December 2014, is expected to materially reduce the volatility of cash flows experienced by the Issuer and provide long term stability due to its expected expiry after the Bonds have matured.

The variable cost of major maintenance of the turbines under the LTPSA is driven by the number of fired hours of operation. The payment structure and amount is similar to the variable revenue from the Power Purchase Agreement (PPA). Hence the LTPSA reduces cost volatility that otherwise would have materially and adversely affected the ratings.

The PPA insulates the Issuer from electricity and fuel price and supply/demand risks. Approximately 86% of actual tariff (as opposed to IFRS-recognized) revenue is paid for the Station to be available and to cover fixed costs. The remaining variable component of revenue is paid on the basis of running hours and start-ups of the combustion and steam turbines. Although variable, the dispatch regime has shown increasing utilization of the Station.

The average DSCR in the period of January 2010 to September 2014 was 1.32 times (x). Since 2010, the annual average Original LTSA cost in 2014 terms was approximately $5.4 million. Assuming the running regime will be similar, the LTPSA cost is expected to be similar to the LTSC cost. Because the debt service amounts are stable, DBRS expects the future DSCR to be in the region of 1.4x, but not consistently reach 1.5x.

The debt service coverage ratio for the last 12 months ended September 30, 2014, as disclosed in the quarterly compliance certificate was 1.44x. The weaker-than-expected performance is mainly a result of higher operating and maintenance costs.

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, which can be found on our website under Methodologies.

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