DBRS Confirms Cory Cogeneration Financial Corporation at BBB (high) with Stable Trends

DBRS Limited (DBRS) has today confirmed the ratings on the Senior Secured Project Bonds (the Bonds) of Cory Cogeneration Funding Corporation (the Issuer). The trends remain Stable. These confirmations reflect the continued performance in line with DBRS’s expectations of the Issuer’s only asset, the Cory Cogeneration Station (the Station). The Station is organized as a joint venture, with financial reporting as Cory Cogeneration Station Joint Venture (Cory JV). The Issuer’s financial performance depends entirely on and is reflected by the performance of Cory JV.

The new Long-Term Parts & Long-Term Service Contract (LTPSA), still with General Electric Canada and signed in December 2014, will materially reduce the volatility of cash flows experienced by the Issuer compared to the arrangements previously in place. It also provides long-term stability due to its expected expiry after the Bonds have matured. The variable cost of major maintenance of the turbines under the LTPSA is driven by the number of fired hours of operation. The payment structure and amount is similar to the variable revenue from the Power Purchase Agreement (PPA).

The PPA insulates the Issuer from electricity and fuel price and supply/demand risks. Approximately 86% of actual tariff (as opposed to international financial reporting standards recognized) revenue is paid for the Station to be available and to cover fixed costs. The remaining variable component of revenue is paid on the basis of running hours and startups of the combustion and steam turbines. Although variable, the dispatch regime has shown a trend of increasing utilization of the Station. The average debt service coverage ratio (DSCR) in the five-year period between 2010 and 2014 was 1.33 times (x).

The DSCR for 2015 as disclosed in the quarterly compliance certificate was 1.55x. The better-than-expected performance is mainly a result of high Station availability and lower operations and maintenance (O&M) costs, both due to no scheduled outages. DBRS expects the 2016 and 2017 financial performance to be weaker due to scheduled outages leading to less availability revenue and relatively high non-LTPSA O&M costs. In addition, in 2016 one-off payments under the LTPSA is likely to bring the DSCR to below 1.2x.

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.