DBRS Confirms Grand Renewable Solar LP at BBB with Stable Trends

DBRS Limited (DBRS) has today confirmed the ratings of BBB with Stable trends on the 3.926% Series 1A-2016 Senior Secured Notes and the 3.926% Series 1B-2016 Senior Secured Notes (collectively, the Notes) issued by Grand Renewable Solar LP (ProjectCo). The Notes, with an outstanding balance of approximately $596.2 million, rank pari passu and will fully amortize by the January 31, 2035, maturity date. The rating confirmations reflect ProjectCo’s stable performance over the past 12 to 15 months, which matched DBRS’s expectations.

ProjectCo, a special-purpose vehicle, owns and operates a 100-megawatt alternating current ground-mounted solar-photovoltaic (PV) generation facility in Haldimand County, Ontario. It also owns a 50% interest in the associated 20-kilometre transmission facilities connecting the solar PV facility to Hydro One Networks Inc.’s electricity grid (collectively, the Project or the Facility). ProjectCo sells all generated electricity to the Independent Electricity System Operator (IESO; rated A (high) with a Stable trend by DBRS) under a 20-year fixed-price power purchase agreement (PPA) until March 30, 2035 — two months after the Notes mature. The Project has had approximately two years of operating history since the commercial operation date was achieved on March 31, 2015.

For the 12-month periods ended December 31, 2016, and March 31, 2017 (financial reporting dates), generation was 7.3% and 6.8% higher than the one-year P90 rating-case forecasts, respectively, and slightly exceeded the P50 projections. The DBRS-adjusted debt service coverage ratio (DSCR) of 1.50 times (x) for both periods exceeded the forecast 1.40x in the rating case. This was driven by the higher-than-expected output and stable operating cost. For the past two years, the Facility has been running relatively smoothly and has sustained a high average availability ratio of approximately 99%. So far, no noticeable module degradation has been detected based on field test results. However, DBRS notes that the winter performance was subpar, primarily driven by lower-than-expected insolation; nonetheless, the aggregate output in 2016 was not affected, as higher output in the other months offset the weak winter generation. To date, the curtailment loss has been sufficiently compensated by the IESO under the PPA. The module warranty provider’s (Canadian Solar Inc.) credit quality has been weakening over the past 12 months; that said, DBRS does not expect this to have an adverse effect on future ratings because of an enhanced project finance structure.

The BBB ratings continue to be underpinned by (1) the 20-year fixed-price PPA with a highly rated offtaker, (2) the limited operating risk expected because of the proven technology and (3) an enhanced project finance structure. The ratings are constrained by (1) long-term module degradation risk, (2) exposure to long-term warranty providers with relatively weak credit quality and (3) revenue variability, which is tied to a variable energy resource and the Facility’s performance ratio. These risks are partially mitigated by the conservative P90 rating-case projections and a reserving remediation mechanism in case the modules degrade faster than expected. DBRS is maintaining its rating-case projection of a constant DSCR at 1.40x for the remaining debt term. DBRS expects the trends on the ratings to remain Stable for the next 12 months; however, material and sustained underperformance (versus the rating case) could cause a negative rating action, while a positive rating action could follow if performance continues at or above the P50 levels, impelling the DSCR to increase to between 1.50x and 1.60x for a sustainable period.

Notes:
All figures are in Canadian dollars unless otherwise noted.

PXX means exceedance probabilities. P50, P90 and P99 values describe estimated minimum electricity generation with a probability of 50%, 90% or 99%, respectively, in any given year (P50, one-year P90 and one-year P99). Unless otherwise specified, all PXX values in the press release are in reference to one-year PXX values adjusted by DBRS, which consider availability, degradation and curtailment factors.

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 Solar Power Projects, which can be found on dbrs.com 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.