DBRS Confirms Spy Hill Power L.P. at “A,” Stable Trend

DBRS Limited (DBRS) has today confirmed the rating of “A” with a Stable trend on the Series A Senior Secured Amortizing Bonds (the Bonds) issued by Spy Hill Power L.P. (Spy Hill or the Issuer), which is a special-purpose entity that owns a simple-cycle natural gas-fired 86 megawatt (MW) power generation facility (the Project). The confirmation reflects the Project’s continued solid performance in 2015 with availability performance at 99.1% (compared to projected 98%) and a DBRS-calculated debt service coverage ratio (DSCR) of 1.70 times (x) for 2015, which was almost identical with the Issuer’s DSCR calculation of 1.71x.

The Issuer benefits from a 25-year peaking power purchase agreement (PPA) with Saskatchewan Power Corporation (SaskPower; rated AA with a Stable trend by DBRS) to provide electrical power to the Saskatchewan transmission system. The Bonds are secured by the Project’s assets. The Bondholders are protected from refinancing risk as the Bonds matures on March 31, 2036, six months prior to PPA expiry.

The PPA insulates the Issuer from electricity price and demand, as well as fuel price and supply risks as 100% of fuel supply costs are passed through to SaskPower. The remaining primary risk for the Issuer is performance risk. The Project must meet the availability factor of at least 97% or pay liquidated damages (LDs), which are capped at $4 million per year, indexed. The Project must also meet specific heat rate requirements or pay a higher operating cost.

DBRS has changed its projections for the financial performance of the Issuer, employing an updated exchange rate. All other macroeconomic parameters, operational and contractual assumptions remain unchanged. Based on a 98.0% Project availability, the minimum projected DSCR is 1.65x, a slight change from 1.66x based on the previous exchange rate due to its impact on the periodic maintenance expense. The DSCR is projected to be in the 1.65x to 1.70x range over the life of the Bonds, which is consistent with the current rating.

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 (August 2015), which can be found on our website under Methodologies.