DBRS Confirms St. Clair Holding, ULC at BBB, Stable

DBRS Limited (DBRS) has today confirmed its rating of BBB with a Stable trend on the 4.881% Senior Secured Notes (the Notes), due August 31, 2031, of St. Clair Holding, ULC (ProjectCo or the Issuer). The associated St. Clair Canadian entities, including the Issuer, underwent a restructuring and were converted into a tax-efficient structure effective June 13, 2014. As a result, the Issuer changed its legal name from St. Clair Holding, Inc. to St. Clair Holding, ULC. After the restructuring, St. Clair Solar, LP, an indirect subsidiary of ProjectCo, becomes the co-Issuer. The Notes now reside with the co-Issuer, a tax-exempt entity. ProjectCo indirectly owns Moore Solar LP and Sombra Solar LP, two separate solar power sites located in St. Clair, Ontario (together, the Project), each with a nameplate generation capacity of 20 megawatts (MW).

ProjectCo benefits from attractive long-term fixed power prices under four ten MW Renewable Energy Standard Offer Program power purchase agreements with the Independent Electricity System Operator (rated A (high), Stable by DBRS), maturing in February 2032, six months after the due date of the Notes.

The Project has shown robust early results since achieving commercial operations in early 2012. For 2014 and the last 12 months to June 30, 2015, electricity generation exceeded degradation-adjusted DBRS base-case estimates at P90 levels by 8% and 10%, respectively. It also surpassed degradation-adjusted DBRS P50 levels by 2% to 4%. Total operating expenses were 19% to 24% below DBRS base-case estimates. As a result, the Project’s debt service coverage ratio (DSCR) of 1.55 times (x) to 1.58x over a 18-month period to June 30, 2015, were higher than DBRS base-case estimates of 1.37x to 1.38x. DBRS could take a positive rating action in the future if the Project continues to produce, on a sustainable basis, (i) electricity at or above the degradation-adjusted P50 levels and (ii) better-than-expected financial results, measured primarily by DSCR. The future rating action would also consider the additional cash flow headroom for the noteholders after 2023 indicated by the enhanced base-case DSCR (1.48x to 1.89x), stemming from the tax-efficient structure. The rating is constrained by (i) solar panel degradation risk and (ii) the credit quality of the solar panel supplier providing a 25-year power output warranty; however, these risks are partially mitigated by (i) additional structural enhancements, including panel degradation reserve accounts; and (ii) high break-even resilience for panel degradation at 2.6% per annum.

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 for use in the European Union.

The applicable methodology is Rating Solar Power Projects, which can be found on our website under Methodologies.

PXX in this report means exceedance probabilities. Specifically, a P50-P75-P90 value describes estimated minimum annual electricity generation with a probability of 50%, 75% or 90% in any given year (one-year P75, P90).

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.