DBRS Confirms Rating of A (high) with Stable Trend on Arrow Lakes Power Corporation’s Series B Bonds

DBRS Limited (DBRS) confirmed its rating on the secured Series B Bonds (the Bonds) of Arrow Lakes Power Corporation (ALPC or the Company) at A (high) with a Stable trend. The 5.516% $350 million Bonds will be fully amortized by the maturity date of April 5, 2041, four years before the expiry of the Electricity Purchase Agreement (EPA). ALPC is a single-purpose entity that owns and operates a 185-megawatt (MW) hydroelectric power station and associated transmission line (the Project). The Company is a tax-exempt Crown corporation indirectly owned by the Province of British Columbia (the Province; rated AA (high) by DBRS). The rating confirmation reflects the Project’s highly predictable cash flow and debt service coverage ratio (DSCR), underpinned by: (1) the Keenleyside Entitlement Agreement (the Entitlement Agreement) and the EPA, essentially eliminating the hydrology and price risks; (2) reliable and low-cost characteristics of the underlying hydro assets; and (3) a projected minimum DSCR of 1.84 times (x) from 2018 until Bond maturity. The rating also considers the strong credit profile of British Columbia Hydro and Power Authority (BC Hydro; rated AA (high) by DBRS), which is the counterparty for the Entitlement Agreement and the EPA.

Project cash flow has considerably improved over the 12 months ended March 2017, benefiting from a higher contract price per megawatt hours (MWh) that came into effect in January 2016 following the 2010 EPA. At the same time, the Project started incurring a higher debt service as the Bonds began to amortize in October 2016. Nonetheless, the Project has realized a DSCR of 2.42x for the year-ended March 2017, supportive of the current rating category. Over the nine months ended December 2017, the DSCR remained strong at 2.45x as the facility continued to maintain low outage rates. The minimum and average DSCRs through the life of the Bonds are also expected to continue to be strong. DBRS expects that the Project will continue to perform as expected in the near to medium term and that the current A (high) rating will remain stable in the absence of any major operating failure causing unexpected high outages and/or higher maintenance capital expenditures.

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

The principal methodology is Rating Project Finance, 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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