DBRS Maintains Brookfield Renewable Energy Partners L.P. Status of Under Review with Developing Implications
Utilities & Independent PowerDBRS Limited (DBRS) has today maintained the status of Under Review with Developing Implications for the following ratings: (1) the Issuer Rating of Brookfield Renewable Energy Partner L.P. (BREP or the Company), (2) the rating of Senior Unsecured Debentures and Notes (the Senior Notes) issued by Brookfield Renewable Energy Partners ULC (formerly BRP Finance ULC) and (3) the rating of Class A Preference Shares issued by Brookfield Renewable Power Preferred Equity Inc. (the Preferred Shares). The Senior Notes and the Preferred Shares are unconditionally and irrevocably guaranteed by BREP. This rating action reflects the continuing uncertainty with respect to the final financing plan to be taken by various entities owned by BREP and its impact on its deconsolidated credit metrics.
On January 13, 2016, DBRS placed the ratings Under Review with Developing Implications following BREP’s announcement that the Company and its institutional partners committed to acquire a 57.6% controlling interest in ISAGEN S.A. E.S.P. (Isagen) from the Colombian government for total considerations of approximately $2.2 billion (the Isagen Acquisition). Isagen owns and operates a renewable energy portfolio consisting of 3,032 megawatts (MW) of principally hydroelectric generating capacity and a 3,800 MW development portfolio in Colombia. The Isagen Acquisition was completed on January 26, 2016. As part of the Isagen Acquisition, two mandatory tender offers (MTO) will also be provided to all remaining shareholders of Isagen within six months after closing of the initial investment. This could increase BREP’s interest in Isagen to approximately 25% from 9%. From a business risk perspective, DBRS views the Acquisition as having a modestly negative impact on BREP (see DBRS’s press release dated January 13, 2016, for more details).
DBRS has reviewed BREP’s 2015 financial performance and is of the view that its 2015 consolidated and deconsolidated financial profiles remained relatively solid and stable from 2014. However, the deconsolidated credit metrics could change materially in the future, depending on the final financing plan to be put in place by BREP with respect to the Isagen Acquisition. In April 2016, the Company also closed its acquisition of 292 MW hydroelectric assets in Pennsylvania (the Holtwood Acquisition) for approximately $860 million. It is DBRS’s view that the Holtwood Acquisition will not have a material impact on the Company’s credit profile (see DBRS’s commentary dated October 9, 2015, for details).
DBRS will assess BREP’s final financing plan for the Isagen Acquisition and the impact of the plan on its deconsolidated key credit metrics. Upon final review, if the Company finances the Isagen Acquisition in a way such that its deconsolidated debt-to-capital will be maintained at around the 20% threshold over time, and other deconsolidated credit metrics, such as cash flow-to-debt and cash flow-to-interest coverage ratios, remain at the 2015 level, DBRS will likely confirm BREP’s ratings (assuming no other material event to incur). However, if the Company finances the Isagen Acquisition in such a way that its deconsolidated debt-to-capital structure materially exceeds the 20% level on a sustained basis, and its other non-consolidated credit metrics deteriorate significantly without corrective action within a reasonable time frame, then a negative rating action is likely to occur.
DBRS will proceed with its review as more information becomes available and aims to resolve the Under Review status once its permanent financing details are known.
Notes:
All figures are in U.S. dollars unless otherwise noted.
The Senior Unsecured Debentures and Notes of BRP Finance ULC and the Class A Preference Shares of Brookfield Renewable Power Preferred Equity Inc. are guaranteed by Brookfield Renewable Energy Partners L.P.
The applicable methodology is Rating Companies in the Independent Power Producer Industry, Rating Holding Companies and Their Subsidiaries, Preferred Share and Hybrid Criteria for Corporate Issuers and DBRS Criteria: Guarantees and Other Forms of Explicit Support, which can be found on our website under Methodologies.
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