DBRS Confirms Brilliant Power Corporation’s Project Bonds at A (high), Stable

DBRS Limited (DBRS) has today confirmed the ratings of Brilliant Power Corporation’s (BPC or the Company) Series A, Series B and Series C Bonds (collectively, the Project Bonds) at A (high) with Stable trends. All three tranches fully amortize by May 31, 2026. BPC is a tax-exempt, single-purpose entity that owns and operates a 145-megawatt (MW) hydroelectric generation facility and the Brilliant Terminal Station transmission assets (the Project) in the Columbia-Kootenay region of British Columbia. The confirmation reflects the Project’s continuing robust performance over the past 12 to 18 months.

The ratings are underpinned by (1) the contractual transfer of hydrology risk to British Columbia Hydro and Power Authority (BC Hydro; rated AA (high), Stable by DBRS) as per the Canal Plant Agreement to 2035; (2) highly predictable cash flow resulting from the primary power purchase agreement (PPA) to 2056 with FortisBC Inc. (FortisBC; rated A (low), Stable by DBRS) that further mitigates operating and capital expenditure (capex) risks; and (3) additional support from a backstop PPA (Backstop PPA) with Powerex Corporation (Powerex), a wholly owned subsidiary of BC Hydro.

Rating of a power project bond is usually constrained by the offtaker’s rating; in this case, however, BPC benefits from implicit support from BC Hydro, given its 100% ownership in Powerex and the interlocking board structures. DBRS expects that the PPA would likely survive a default by FortisBC, given the Project’s strategic importance to FortisBC as a reliable long-term energy supplier.

BPC’s financial performance has been stable year over year. Debt service coverage ratios (DSCRs) for F2016 (ending March 31, 2016) and the first nine months of F2017 (ending December 31, 2016) were robust at 1.75 times (x) and 1.91x, respectively. The DSCR is expected to increase over time, benefitting from a tariff escalator under the PPA. The current DSCR level is supportive of the ratings. DBRS expects a stable rating trend for the next 12 months, barring any unforeseen adverse event(s).

Rating Drivers

The ratings are capped at A (high) as per DBRS’s rating project finance methodology. Downward rating pressure could be driven by a rating downgrade of FortisBC, a decoupling of Powerex and BC Hydro, or a material and protracted deterioration of BPC’s operating and financial metrics.

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, 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.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.