DBRS Confirms Rating on North Battleford Power L.P.’s Series A Senior Secured Amortizing Bonds at A (low) with Stable Trend

DBRS Limited (DBRS) has today confirmed its rating of A (low) with a Stable trend on the Series A Senior Secured Amortizing Bonds (the Bonds) of North Battleford Power L.P. (ProjectCo or the Issuer), a limited partnership wholly owned by Northland Power Inc. (NPI). ProjectCo is a special-purpose vehicle that owns and operates a combined cycle 260-megawatt baseload power generation facility that has been in operation since June 5, 2013. The facility benefits from a 20-year baseload power purchase agreement (PPA) with Saskatchewan Power Corporation (SaskPower; rated AA with a Stable trend by DBRS), expiring in June 2033. The project is located approximately 150 kilometres northwest of Saskatoon, on land owned by the Issuer. The Bonds are fully amortized and mature six months prior to the PPA expiration date.

ProjectCo’s operating results for 2015 and the last 12 months (LTM) to June 2016 met projections. The senior debt service coverage ratio (DSCR) of 1.90 times (x) and 1.88x for 2015 and LTM to June 2016, respectively, exceeded rating case projections of 1.81x. Plant availability ratio of 95.8% in 2015 also surpassed the projected 93.1% in the rating case. The LTM (to June 30, 2016) plant availability ratio of 95.5% indicates that ProjectCo is on track to meet or exceed projections in the rating case.

The rating continues to be supported by (1) a 20-year PPA that transfers demand and price risks to SaskPower; (2) the fuel supply and transportation costs being largely a pass-through under the PPA; (3) achievable availability levels and heat rate assumptions; (4) the proven and mature technology of General Electric Company’s (GE) 7FA turbine-generator; (5) a long-term services agreement with General Electric Canada, guaranteed by GE; (6) robust early operating results; and (7) a minimum senior DSCR of 1.81x that is consistent with the A (low) rating.

The performance risk is considered one of the primary risks for rating considerations. Facility output less than the capacity and operating reserve levels as required under the PPA would lower revenues and could result in liquidated damages. In addition, higher heat rates than those prescribed in the PPA would result in increased costs. Performance depends primarily on the reliability of the turbine-generator equipment, the long-term service agreement and the experience of the owner-operator. Given that the project is a single turbine configuration, should the turbine fail, causing a prolonged outage, the revenue impact would be far greater than that for a multiple turbine configuration. This constrains the rating. Nonetheless, the project’s better-than-expected availability, albeit still in its early operation phase, is encouraging. Any catastrophic events should also be covered by a comprehensive insurance program that has been independently reviewed by an Insurance Advisor.

Notes:
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.