DBRS Confirms the Rating on InPower BC General Partnership’s Senior Secured Bonds and Removes the Under Review with Negative Implications Status

DBRS Limited (DBRS) has today confirmed the rating of BBB (high) with a Stable trend on the $299.2 million Senior Secured Bonds (the Bonds) of InPower BC General Partnership (ProjectCo) and removed the rating from Under Review with Negative Implications. ProjectCo is the special-purpose entity created to design, build, finance and maintain a replacement hydroelectric plant on the Campbell River of Vancouver Island (the John Hart Generating Station Replacement Project) under a 19.75-year project agreement with the British Columbia Hydro and Power Authority (BC Hydro; rated AA (high) with a Stable trend by DBRS).

The design-build contractor (DB Contractor) provided a revised schedule in July to the Senior Creditor Technical Advisor (SCTA) to reflect the then current progress on site and the delay mitigation measures implemented. The revised schedule confirms that the service commencement should be achieved on October 10, 2018, same as the original schedule at financial close. Having reviewed such revised schedule, the SCTA, in its latest report published on September 29, 2016, has ceased to comment on delays in relation to the original schedule and is of the opinion that the revised schedule is achievable.

At the powerhouse, the DB Contractor continues to work every second Saturday to maintain the schedule and retains the ability to accelerate if required. The powerhouse excavation was completed in April 2016. According to BC Hydro in its public report, there is very little seepage from ground water and the density of the rock is better than expected. Works are now focused on concrete pouring. The main access tunnel was completed in September 2016 and all heavy machineries can now be mobilized without constraints. The turbines and generators are being fabricated offsite and according to the supplier are still on schedule for delivery.

DBRS notes that due to the relatively constrained working area, the power tunnel excavation would benefit less from re-sequencing of activities. As such, to maintain the revised schedule an important assumption made by the SCTA is that the DB Contractor can progress with power tunnel excavation of at least 84 metres per month until reaching the middle earthfill dam, which is around 400 metres away from the intake. Currently the excavation crews are using six-metre blasting rounds and are working 24 hours per day, six days per week. Over the past five months (May to September), the average excavation rate is about 89 metres per month, with the two most recent months (August and September) reporting monthly progress of 90 metres and 140 metres, respectively, demonstrating the DB Contractor’s ability to accelerate works as needed. By September 2016, approximately 650 metres (or 41%) of the 1,575-metre power tunnel had been completed.

Additional comfort is drawn from a geotechnical investigation commenced in August 2016 to discover potential buried channels along the alignment. According to the SCTA, such investigation is nearing completion with no major issues identified. Now that the main access tunnel is completed, a second access and egress route has also been created for the DB Contractor to move crew and equipment more easily.

Based on the latest SCTA report, by the end of July 2016, approximately 49.4% of DB works had been completed, measured by the value earned by the DB Contractor. This is slightly ahead of the time elapsed (47.8%) but approximately 12% (or $48 million) behind the scheduled payment profile as of March 2015.

Currently the Project seems to be generally on track with the revised schedule. However, DBRS notes that if material delays were to accumulate or if significant geotechnical issues were encountered in power tunnel excavation, a negative rating action may result.

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 Public Private Partnerships, which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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