DBRS Confirms Arrow Lakes Power Corporation at A (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the rating on the Series B Project Bonds (the Bonds) of Arrow Lakes Power Corporation (ALPC or the Project) at A (high) with a Stable trend. The rating reflects the credit strength of British Columbia Hydro & Power Authority (BC Hydro; rated AA (high) with a Stable trend by DBRS) and its undertaking in the Project. Hydrology risk is transferred to BC Hydro under the Entitlement Agreement dated June 1, 2000. BC Hydro delivers to ALPC a fixed monthly energy entitlement (estimated at 767 gigawatt hours (GWh) per year), adjusted for any plant outages, and, in return, ALPC delivers to BC Hydro all of its electricity generation.

Payment to the Project is governed by two consecutive Electricity Purchase Agreements (EPAs) with BC Hydro. The first EPA expires at the end of 2015, after which the second EPA comes into effect until December 31, 2045 (post maturity of the bonds in April 2041). The primary difference between both EPAs is the higher purchase price to $84.30/MWh (indexed by 50% consumer price index) under the second EPA versus the current EPA price of around $52/MWh. Starting October 2016, the outstanding Bonds will become fully amortizing within the term of the new EPA, thus eliminating refinancing risk. Both EPAs are structured as take-or-pay contracts, and BC Hydro pays ALPC regardless of whether or not they take the electricity.

For the last 12 months (LTM) ended December 31, 2014, EBITDA was stable at $26.3 million, slightly below fiscal year-end (FYE) March 31, 2015. This was primarily the result of higher operations and maintenance costs (O&M) incurred from last year’s deferred maintenance costs, due to some labour disputes. The debt service coverage ratio (DSCR) was over 1.6 times (x), which remains adequate for an “A” range credit rating.

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.