DBRS Confirms Cory Cogeneration Funding Corporation at BBB (high) with Stable Trends

DBRS Limited (DBRS) confirmed the ratings of the 7.586% Senior Secured Project Bonds, Series A and the 7.601% Senior Secured Project Bonds, Series B (collectively, the Bonds) of Cory Cogeneration Funding Corporation (the Issuer) at BBB (high). The trends remain Stable. The confirmations reflect the continued performance of the Issuer’s only asset, the Cory Cogeneration Station (the Station or the Project), in line with DBRS’s expectations. The Station is organized as a joint venture, with financial reporting as Cory Cogeneration Station Joint Venture (Cory JV). The Issuer’s financial performance depends entirely on, and is reflected by, the performance of Cory JV.

The Power Purchase Agreement (PPA) insulates the Issuer from electricity and fuel prices and supply/demand risks. Most of the actual tariff revenue (as opposed to revenue recognized by International Financial Reporting Standards), which was approximately 84% in 2017, is paid for the Station to be available and to cover fixed costs. The remaining variable component of revenue is paid on the basis of running hours and start-ups of the combustion and steam turbines. The Station operates in baseload mode and additional dispatch depends on system demand based on instructions provided by Saskatchewan Power Corporation (rated AA/R-1 (high) with Stable trends by DBRS). Although variable, the dispatch regime has shown steady utilization of the Station. The average debt service coverage ratio (DSCR) in the five-year period between 2012 and 2016 was 1.40 times (x).

The DSCR of 1.31x for 2016 is weak because of relatively higher operations and maintenance (O&M) costs as a result of an additional one-off payment under the Long-Term Parts and Service Agreement and scheduled maintenance work (major inspection/generator rewind of one of the two combustion turbines and other equipment maintenance) as well as lower availability revenues due to reduced availability of 91.3% caused by scheduled maintenance outages. The DSCR for the 2017 calendar year is projected to recover and is expected to be around 1.50x, which is consistent with the assigned ratings. In 2018 and beyond, the DSCR is expected to remain healthy, reflective of stable operational performance. Overall, the Station is meeting its efficiency and availability requirements under the PPA. If the financial performance shows a consistent improvement, DBRS may take a positive rating action. However, if the Project experiences a sustained increase in O&M expenses and/or reduced availability with significant impacts on the DSCR or deterioration in the credit profile of the Project owners, an adverse rating action may be considered by DBRS.

Notes:
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, which can be found on dbrs.com under Methodologies.

This rating is no longer endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did not participate in the rating process. 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.

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.