DBRS Confirms Brilliant Power Corporation at A (high), Stable

DBRS Limited (DBRS) confirmed the ratings of Brilliant Power Corporation’s (BPC) Series A Bonds, Series B Bonds and Series C Bonds (collectively, the Project Bonds) at A (high) with Stable trends. All three tranches of the Project Bonds will fully amortize by the May 31, 2026, maturity date. BPC is a tax-exempt, single-purpose Crown corporation indirectly owned by the Province of British Columbia (British Columbia; rated AA (high) with a Stable trend by DBRS). BPC owns and operates a 145-megawatt hydroelectric generation facility as well as the Brilliant Terminal Station transmission assets (the Project) in the Kootenay– Columbia region of British Columbia. The Project Bonds are structured as a project finance transaction with non-recourse to sponsors.

The rating confirmations reflect the Project’s continuing robust performance over the past 12 to 18 months, which met DBRS’s expectations. Debt service coverage ratios (DSCRs) were robust at 1.84 times for both F2017 (ended March 31, 2017) and the first nine-month period (ended December 31, 2017) of F2018. The DSCRs are expected to rise over time, benefiting from a tariff escalator under the primary power purchase agreement (PPA) with FortisBC Inc. (FortisBC; rated A (low) with a Stable trend by DBRS). The current and future DSCR levels are supportive of the assigned ratings.

The ratings are underpinned by (1) the highly predicable cash flow resulting from the long-term PPA of a cost-of-service nature, which transfers virtually all revenue, operating cost and capital expenditure risks to FortisBC until debt maturity; (2) the contractual transfer of hydrology risk to British Columbia Hydro and Power Authority (BC Hydro; rated AA (high) with a Stable trend by DBRS) under the Canal Plant Agreement to 2035 (beyond debt maturity); and (3) additional support from a backstop PPA (the Backstop PPA) with Powerex Corporation (Powerex), a wholly owned subsidiary of BC Hydro. The Project’s debt ratings are usually constrained by the primary offtaker’s credit rating — in this case, FortisBC’s A (low) rating. However, DBRS believes that the Project also benefits from implicit support from the higher-rated BC Hydro under the Backstop PPA given its 100% ownership in Powerex and the interlocking board structures. Furthermore, DBRS expects that the PPA would likely survive under a hypothetical FortisBC default scenario given the Project’s strategic importance as one of FortisBC’s primary energy-supply sources. As a result of these factors, the Project Bonds’ ratings are higher than the primary offtaker’s (FortisBC).

DBRS expects the ratings to remain stable for the next 12 months, barring any unforeseen adverse event(s). An upgrade is unlikely given that the ratings have already reached the rating cap for single-asset power projects according to DBRS’s “Rating Project Finance” methodology. A downgrade could be driven by any of the following: (1) a weakening of BC Hydro’s implicit support as a result of decoupling Powerex from its corporate structure or (2) a material and protracted deterioration of BPC’s operating and financial metrics.

Notes:
The principal methodologies are Rating Project Finance and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

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

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