DBRS Confirms Ratings of Brookfield Renewable Partners L.P. and Subsidiaries

DBRS Limited (DBRS) has today confirmed the Issuer Rating of Brookfield Renewable Partners L.P. (BEP or the Company) as well as the Senior Unsecured Debentures and Notes (the Senior Notes) rating of Brookfield Renewable Partners ULC (formerly BRP Finance ULC) at BBB (high). DBRS has also confirmed the ratings on BEP’s Class A Preferred Limited Partnership Units and the Class A Preference Shares issued by Brookfield Renewable Power Preferred Equity Inc. (the Preferred Shares) at Pfd-3 (high). All trends are Stable. The Senior Notes and the Preferred Shares are unconditionally and irrevocably guaranteed by BEP.

BEP’s business risk profile remained relatively stable following its February 2017 announcement that, along with institutional partners, the Company agreed to acquire 51% of TerraForm and 100% of TerraForm global (the TerraForm Acquisition). The TerraForm Acquisition is expected to close in H2 2017. DBRS expects BEP’s total investment in the TerraForm Acquisition to be approximately $500 million and the acquisition to be funded with the proceeds from BEP’s preferred share issuance in February 2017 and cash on hand. DBRS does not view the TerraForm Acquisition as having a material impact on BEP’s credit profile (see DBRS’s commentary dated March 7, 2017, for details).

DBRS notes that approximately 91% of BEP’s generation is contracted for 2017 and approximately 84% is contracted for 2018, which DBRS views as strong; however, the current contracted portion for 2019 and 2020 is lower at approximately 78% and 66%, respectively. DBRS notes that approximately 40% of the 2017 contractual arrangements are with Brookfield Asset Management (BAM) or its subsidiaries (Internal Contracts). The contracted level is expected to increase slightly over the medium term as short-term contracts in Brazil and Colombia are highly likely to be renewed at similar prices when they expire; however, most of the drop off in contracted generation is located in North America, where the low current merchant electricity prices could challenge contract renewal at existing contracted rates. DBRS expects that the storage and renewable nature of BEP’s assets should keep the Company competitive in the capacity-spot electricity markets. The current remaining life of the contracts averages 16 years, which is reasonably long based on DBRS’s “Rating Companies in the Independent Power Industry” methodology. DBRS expects BEP to continue to manage its contractual portfolio on an ongoing basis and to reduce the uncontracted portion in 2019 and 2020 as circumstances allow.

DBRS has reviewed BEP’s YE2016 and Q1 2017 financial performance and believes that its consolidated leverage ratio remained reasonably solid from the 2015 level and that its deconsolidated ratios remained supportive of the current ratings. DBRS focuses on the deconsolidated financial profile because there is substantial debt at the project level, which is non-recourse to BEP. The Company’s current rating factors in the structural subordination of BEP’s debt to the project-level debt. DBRS expects the Company’s financial profile to modestly improve in 2017, reflecting the 2017 contractual profile and a full-year cash flow contribution from Isagen.

BEP has $715 million of subsidiary debt maturing in 2017, approximately half of which DBRS estimates is exposed to merchant/recontracting risk and the other half of which is contracted. DBRS expects that this debt will be refinanced in 2017 with investment-grade metrics; however, DBRS also notes that BEP’s liquidity position of approximately $1.2 billion largely mitigates refinancing risk in the short term.

Notes:
All figures are in U.S 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 principal methodologies are Rating Companies in the Independent Power Industry, DBRS Criteria: Rating Holding Companies and Their Subsidiaries, DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers and DBRS Criteria: Guarantees and Other Forms of Explicit Support, which can be found on dbrs.com under Methodologies.