DBRS Confirms Lièvre Power Financing Corporation at A (low), Stable

DBRS Limited (DBRS) has today confirmed the rating of the $225 million Senior Secured Bonds (the Bonds) of Lièvre Power Financing Corporation (the Issuer) at A (low) with a Stable trend. The Issuer is a single-purpose financing entity for the hydroelectric power generation assets of Lièvre Power LP (ProjectCo or the Project). The Bonds are secured by the Project. The Bonds are interest only with a bullet repayment at maturity.

The Project has a total capacity of 263 megawatts and a long-term average generation (LTAG) of 1,516 gigawatt hours per year.

ProjectCo is supported by two power purchase agreements (PPAs). The Power Agency and Guarantee Agreement (PAGA) with Brookfield Renewable Power, Inc. (BRPI), which covers over 95% of the Project’s LTAG and expires in 2019. The remaining production (estimated at 5%) is sold to Hydro-Québec (A (high) Stable by DBRS) under a 25-year PPA. Under the terms of the PAGA, all production not sold under the third-party contract is purchased by a Brookfield Energy Marketing LP (BEMLP), a wholly owned subsidiary of BRPI. BEMLP in turn sells power into the wholesale power markets in Ontario, New York and New England. BRPI is ultimately responsible for the PAGA obligations, including all payment obligations. The PAGA provides protection against near-term weaknesses in the power markets, but it does not extend to the term of the Bonds and expires six years prior to bond maturity.

The confirmation of the rating reflects the Project’s superior market-based competitive position in the absence of support from the power purchase contracts. While ratings on a power generation project are typically limited by the credit quality of the counterparty of its power purchase contracts, DBRS assessed the performance of the Project on a merchant basis following the PAGA expiry in 2019. DBRS is of the opinion that, at its current debt levels, the Project demonstrates a superior competitive market position and is not expected to be reliant on its offtaker to service its debt obligations. As per the sensitivity analyses performed in the financial section, the Project can be expected to withstand market prices around $30 per megawatt hour throughout the life of the bonds and still be able to service debt obligations after capex. DBRS will continue to monitor relevant wholesale power prices and a rating action could be taken if prices drop to a point at which the Project’s competitive market position declines. In 2010 and 2012, the Project experienced low hydrology of 20% below LTAG, yet coverage levels remained robust above 5.20 times (x) in both years. DBRS’s break-even hydrology case shows that a drop of more than 22% in hydrology every year throughout the life of the Bonds would be required to breach the 1.00x coverage levels after capex. Since 2013, hydrology levels have recovered to above-LTAG levels and resulted in after-capex coverage levels of 6.76x in 2014 and 7.38x in 2013.

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.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.