DBRS Confirms Spy Hill Power L.P. at “A,” Stable Trend

DBRS Limited (DBRS) has today confirmed the rating of “A” with a Stable trend on the Series A Senior Secured Amortizing Bonds (the Bonds) issued by Spy Hill Power L.P. (Spy Hill or the Issuer), which is a special-purpose entity (SPE) that owns a simple-cycle natural gas-fired 86 megawatt power generation facility (the Project). The confirmation reflects the Project’s continued solid performance in 2016 with availability performance at 98.8% (compared to projected 98%) and a DBRS-calculated debt service coverage ratio (DSCR) of 1.68 times (x) for 2016.

The Issuer benefits from a 25-year peaking power purchase agreement (PPA) with Saskatchewan Power Corporation (SaskPower; rated AA with a Stable trend by DBRS) to provide electrical power to the Saskatchewan transmission system. The Bonds are secured by the Project’s assets. The Bondholders are protected from refinancing risk as the Bonds mature on March 31, 2036, six months prior to PPA expiry.

The PPA insulates the Issuer from electricity price and demand fluctuations, as well as fuel price and supply risks, as 100% of fuel supply costs are passed through to SaskPower. The remaining primary risk for the Issuer is performance risk. The Project must (1) meet an availability factor of at least 97%; (2) provide energy at the level requested by SaskPower; and (3) be able to start up within 15 minutes of a dispatch request, or pay liquidated damages, which are capped at $4 million per year, indexed. The Project must also meet specific heat rate requirements or pay a higher operating cost.

In 2017, the financial performance is expected to be lower as compared to long-term projections as a result of (1) additional expenses related to certain planned maintenance activities as the Project will achieve the 12,500 fired hours milestone, (2) a one-off expense related to generator #1 maintenance, (3) reduced revenues caused by lower expected availability (of 96.3%) as a consequence of planned maintenance activities and (4) increased funding of the major maintenance reserve account due to higher expected dispatch levels. The resulting DSCR is projected to drop to 1.55x. In 2018 and beyond, the DSCR is expected to rebound to the 1.66x to 1.70x range over the life of the Bonds, which is consistent with the current rating and reflective of stable operational performance of the Project. If the drop in DSCR is sustained, an adverse rating action would be considered by DBRS.

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 principal methodology is Rating Project Finance (December 2016), which can be found on dbrs.com under Methodologies.