DBRS Confirms Rating on North Battleford Power L.P. at A (low), Stable

DBRS Limited (DBRS) has today confirmed its rating of A (low) with a Stable trend on the Series A Senior Secured Amortizing Bonds (the Bonds) of North Battleford Power L.P. (ProjectCo or the Issuer), a limited partnership wholly owned by Northland Power Inc. (NPI). ProjectCo is a special-purpose entity that owns and operates a combined cycle 260-megawatt baseload power generation facility, in operation since June 5, 2013. The facility benefits from a 20-year baseload power purchase agreement (PPA) with Saskatchewan Power Corporation (SaskPower; rated AA with a Stable trend by DBRS), expiring in June 2033. The project is located approximately 150 kilometres northwest of Saskatoon on land owned by the Issuer. The Bonds are fully amortized and mature six months prior to the PPA expiration date.

ProjectCo’s operating results for 2014 and the last 12 months (LTM) to June 2015 met projections. The senior debt service coverage ratio (DSCR) of 1.90 times (x) for both periods exceeded base-case projections of 1.81x. Plant availability ratio of 95.3% in 2014 also surpassed the projected 93.1% in the base case. The LTM (to June 30, 2015) plant availability ratio of 96.1% indicates that ProjectCo is on track to meet or exceed 2015 projections.

The rating continues to be supported by (1) a 20-year PPA transfers demand and price risk to SaskPower; (2) the fuel supply and transportation costs being largely a pass-through under the PPA; (3) achievable availability levels and heat rate assumptions; (4) the proven and mature technology of General Electric Company’s (GE) 7FA turbine-generator; (5) a long-term services agreement with General Electric Canada (GEC), guaranteed by GE; (6) robust early operating results; and (7) a minimum senior DSCR of 1.81x, which is consistent with an A (low) rating.

The performance risk is considered one of the primary risks for rating considerations. Less than minimum required load capacity would lower revenues and could result in liquidated damages. Performance depends primarily on the reliability of the turbine-generator equipment, the long-term service agreement and the experience of the owner-operator. Given that the project is a single turbine configuration, should the machine fail, causing a prolonged outage, the revenue impact would be far greater than for a multiple turbine configuration. This constrains the rating. Nonetheless, the project’s better-than-expected availability, albeit still in its early operation phase, is encouraging. The catastrophic events should also be covered by a comprehensive insurance program that has been independently reviewed by an Insurance Advisor.

Notes:
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, which can be found on our website under Methodologies.