DBRS Confirms Ratings of Brookfield Renewable Partners L.P. and Subsidiaries

DBRS Limited (DBRS) confirmed the Issuer Rating of Brookfield Renewable Partners L.P. (BEP or the Company) as well as the Senior Unsecured Debentures and Notes (the Senior Notes) rating of Brookfield Renewable Partners ULC at BBB (high). DBRS also confirmed the ratings on BEP’s Class A Preferred Limited Partnership Units and the Class A Preference Shares issued by Brookfield Renewable Power Preferred Equity Inc. (the Preferred Shares) at Pfd-3 (high). All trends are Stable. The Senior Notes and the Preferred Shares are unconditionally and irrevocably guaranteed by BEP.

BEP’s business risk profile has remained relatively stable following two acquisitions in late 2017. In October 2017, BEP, along with its institutional partners, completed the acquisition of a 51% interest in TerraForm Power for a total commitment of $656 million. BEP holds a 16% interest in TerraForm Power with a total commitment of $203 million. TerraForm Power owns a large-scale diversified portfolio of wind and solar assets located predominantly in the United States, benefiting long-term power contracts with an average remaining life of 15 years. This was followed by the December 2017 completion of the acquisition of 100% of TerraForm Global, Inc. (TerraForm Global), a globally diversified renewable power portfolio, by BEP and its institutional partners, for a total net investment of $750 million. BEP holds a 31% interest in TerraForm Global with a net investment of approximately $230 million. TerraForm Global generates stable cash flow from its 952 megawatts of renewable power assets located predominantly in Brazil, India and China, supported by long-term contracts with an average remaining life of 17 years. Following these two acquisitions, BEP’s financial leverage, from both consolidated and deconsolidated perspectives, has remained stable and is consistent with the current ratings.

The Company’s contract profile remains strong in 2018, which is expected to continue over the medium term, with approximately 92% of BEP’s generation being contracted for 2018 and 2019. However, DBRS notes that approximately 40% of the 2018 contractual arrangements are with Brookfield Asset Management Inc. (BAM; rated A (low) with a Stable trend by DBRS) or its subsidiaries (Internal Contracts). The contracted level is expected to increase slightly over the medium term as short-term contracts in Brazil and Colombia are highly likely to be renewed at similar prices when they expire. However, a drop off in contracted generation may occur in North America, where the low current merchant electricity prices could challenge contract renewal at existing contracted rates. DBRS expects that the storage and renewable nature of BEP’s assets should keep the Company competitive in the capacity-spot electricity markets. DBRS views that the current remaining life of the contracts averaging 15 years is reasonably long. DBRS expects BEP to continue to manage its contractual portfolio on an ongoing basis and to reduce the uncontracted portion in 2020 and 2021 as circumstances allow.

BEP’s YE2017 and Q1 2018 financial performance was solid; its key credit metrics, both on a consolidated and deconsolidated basis, improved from 2016, largely supported by stronger cash flow from portfolio growth, higher volume and higher average prices. DBRS particularly focuses on BEP’s key deconsolidated metrics because (1) there is substantial debt at the project level, which is non-recourse to BEP and (2) distributions to BEP from projects is after cash distributions to non-controlling interest partners. In this regard, these deconsolidated metrics remained solid in 2017 and in Q1 2018. The Company’s liquidity remains strong at the corporate level with approximately $1.4 billion in cash and available credit facilities as of March 31, 2018. DBRS expects BEP’s financial profile to modestly improve in 2018, reflecting the 2018 contractual profile and a full-year cash flow contribution from the 2017 acquisitions. However, should the deconsolidated metrics deteriorate materially from the current level, the ratings may be under pressure.

The Company’s current ratings factor in the structural subordination of BEP’s debt to the project-level debt. The structural subordination issue is partially mitigated by factors such as size and diversification of cash flow. The current ratings also factor in implicit support by BAM, which indirectly owns 60% of BEP on a fully-exchanged basis and provides BEP with a $400 million credit facility and internal generation contracts.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Independent Power Producer Industry, DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries, DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers 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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