DBRS Removes BRP From Under Review – Developing and Confirms All Ratings, Stable Trends

DBRS Limited (DBRS) has today removed Brookfield Renewable Partners L.P. (BRP or the Company; formerly Brookfield Renewable Energy Partners L.P.) from Under Review with Developing Implications and confirmed the ratings as follows:

-- Issuer Rating of BRP at BBB (high), Stable trend
-- Class A Preferred Limited Partnership Units of BRP at Pfd-3 (high), Stable trend
-- Class A Preference Shares of Brookfield Renewable Power Preferred Equity Inc. (guaranteed by BRP) at Pfd-3 (high), Stable trend
-- Senior Unsecured Debentures and Notes of BRP Finance ULC (guaranteed by BRP) at BBB (high), Stable trend

On January 13, 2016, DBRS placed all the ratings as listed above Under Review with Developing Implications. The rating actions followed the announcement that the Company, with its institutional partners (together, the Consortium), committed to acquire a 57.6% controlling interest in ISAGEN S.A. E.S.P. (ISAGEN) for a total consideration of approximately $2.2 billion (the Acquisition). The Acquisition required the completion of two mandatory tender offers (MTOs) for ISAGEN’s remaining public shares.

On May 16, 2016, the Consortium completed the first MTO for an additional 25.4% of ISAGEN for $976 million, bringing the Consortium’s ownership of ISAGEN to approximately 83%. Following the first MTO, as part of the Consortium, the Company committed an aggregate of $625 million in respect of the acquisition of ISAGEN shares.

The second MTO is expected to be launched in July 2016 by the Consortium to acquire the remaining 17% of ISAGEN shares. BRP is not required to make any additional equity contributions to the Consortium and its investment in ISAGEN is expected to remain at $625 million. The estimated total price of 100% of ISAGEN shares is approximately $3.5 billion. Based on the Consortium’s financing plan, the non-recourse, project debt is expected to be $750 million and the remaining $2,750 million is funded with equity contributions from the Consortium. Following the second MTO, and based on the above financing plan, the Company’s $625 million will be equivalent to approximately 23% of ISAGEN. DBRS notes that the Acquisition of the first 83% of ISAGEN shares has been completed by the Consortium. DBRS also notes that the Consortium has secured sufficient funds and commitments from its institutional partners for the second MTO.

In DBRS’s January 13, 2016, press release, DBRS stated that “the net effect of the Acquisition on BRP’s business risk profile is viewed as modestly negative by DBRS, but is not expected to significantly affect the overall business risk assessment of BRP.” DBRS continues to hold that view regarding the impact of the Acquisition on the Company’s business risk profile. Please see DBRS’s January 13, 2016, press release for details.

ISAGEN is Columbia’s third-largest power producer owning and operating seven plants representing 3,032 megawatts of installed capacity, of which six are hydroelectric plants accounting for approximately 90% of installed capacity. It is estimated that nearly 80% of ISAGEN’s 2016 revenues are contracted.

DBRS has reviewed the Company’s final financing plan of the Acquisition and is of the view that the Company’s final financing plan is consistent with DBRS’s expectations. In support of the Acquisition, in May 2016, the Company closed CAD 200 million preferred unit offering (Class A Limited Partnership Units) and in June 2016, the Company completed CAD 860 million equity offering. The preferred shares were treated as equity since the outstanding amount still falls within DBRS’s 20% threshold of common equity. Based on DBRS’s review and pro forma calculations, the Company’s consolidated and deconsolidated metrics would remain supportive of the current rating as follows: (1) its pro forma consolidated debt-to-capital ratio would not materially change from 2015, remaining in the 45% to 47% range in 2016; (2) its pro forma deconsolidated debt-to-capital ratio is expected to remain around 20% at the end of 2016; (3) the Company’s pro forma deconsolidated credit metrics, such as cash flow-to-debt and cash flow-to-interest coverage ratios, would slightly improve from 2015 (the cash flow-to-debt ratio was 26.3% in 2015 and the cash flow-to-interest coverage was, including preferred dividends, 4.88 times in 2015) due mainly to stronger cash flow from hydro projects in North America in the first quarter of 2016. In addition, given the Company’s contractual profile (approximately 90% of generation output is contracted for 2016 and 2017) and with the expected incremental cash flow from the Acquisition, DBRS expects that the Company’s deconsolidated cash flow-related metrics will remain stable and will be consistent with the current ratings over the medium term.

For more information on the ISAGEN Acquisition please see the DBRS press release dated January 13, 2016.

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 unconditionally and irrevocably guaranteed by Brookfield Renewable Partners L.P.

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 methodologies are Rating Companies in the Independent Power Industry, Rating Holding Companies and Their Subsidiaries, Preferred Share and Hybrid Criteria for Corporate Issuers, DBRS Criteria: Guarantees and Other Forms of Explicit Support, and DBRS Criteria: Financial Ratio Definitions and Accounting Adjustments – Non-Financial Companies, which can be found on our website under Methodologies.

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