DBRS Comments on BREP’s Acquisition of 292 MW Hydroelectric Portfolio in Pennsylvania

DBRS Limited (DBRS) today notes that Brookfield Renewable Energy Partners L.P. (BREP or the Company, rated BBB (high)) has announced its acquisition of a 292-megawatt (MW) hydroelectric portfolio in Pennsylvania (the Acquisition). The Acquisition is not expected to have a material impact on BREP’s rating. DBRS views the Acquisition as modestly negative to BREP’s business risk assessment (BRA), as the generation output from the acquired assets (representing approximately 4% of total pro-forma generation) is exposed to the merchant power market. However, DBRS expects BREP to prudently finance the Acquisition in order to be in line with DBRS’s 20% deconsolidated debt-to-capital threshold and to maintain a financial risk assessment (FRA) that remains supportive of the current rating.

BREP’s BRA is underpinned by its highly contracted and diversified asset portfolio. As at June 30, 2015, BREP’s contracted output on a proportionate basis for 2016 was expected be approximately 89%. Pro forma the Acquisition, the Company’s contracted position is expected to weaken modestly but to remain above DBRS’s 80% threshold. Should contracted output fall below 80% as a result of the acquisition of additional merchant assets and/or the expiry of existing power contracts without proper hedging, BREP’s business risk profile could be negatively affected.

BREP’s FRA is based on its deconsolidated credit metrics and reflects DBRS’s expectation that BREP will maintain its deconsolidated debt-to-capital ratio within the 20% threshold. Given BREP’s track record, DBRS expects the Company to finance the Acquisition in a prudent manner to maintain its ratio within this threshold. However, should BREP’s deconsolidated debt-to-capital deteriorate materially beyond the 20% threshold as a result of the Acquisition, any additional acquisitions and/or unforeseen cash shortfalls going forward, this could result in a negative rating action.

The Acquisition consists of two facilities, the 252-MW Holtwood station and the 40-MW Wallenpaupack station, which have a combined expected average annual generation of approximately 1.1 million megawatt hours. The purchase price of the Acquisition is $860 million, and BREP is expected to fund the Acquisition with its institutional partners and maintain an economic interest in the portfolio of approximately 40%. The Acquisition is expected to close in Q1 2016, subject to regulatory approvals.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Independent Power Producer Industry, which can be found on our website under Methodologies.