DBRS Changes Trend on Brookfield Renewable Kwagis Holding Inc. to Negative from Stable and Confirms A (low) Rating

DBRS Limited (DBRS) changed the trend on the Series I Senior Secured Bonds (the Bonds) issued by Brookfield Renewable Kwagis Holding Inc. (the Issuer) to Negative from Stable and confirmed the Bonds’ A (low) rating.

The trend change reflects the generation and revenue underperformance of the 45-megawatt (MW) run-of-river hydroelectric power generating facility in British Columbia (the Project) since achieving commercial operations date (COD) on April 9, 2014, compared with the long-term average generation (LTAG) and revenue target. This has resulted in the debt service coverage ratio (post capex and interest-only) to be under 2.0 times and below plan, which, as mentioned in last year’s rating report, may result in a negative rating action.

For the four-year period since COD up to and including April 2018, cumulative generation is 13.1% below LTAG, and cumulative revenue is 15.4% below planned revenue. DBRS recognizes that hydrological variability for run-of-river projects can be large and patterns can only be statistically significant over longer periods of time. DBRS will continue to monitor the Project’s energy and revenue generation and will review hydrology assumptions. DBRS may reverse the Negative trend or take a further negative rating action depending on the Project’s performance.

The Bonds are guaranteed by the Issuer’s project subsidiary, Kwagis Power Limited Partnership (the Project LP), and are secured by all assets of the Project. The $175 million Bonds start amortizing in 2024 and fully amortize until 2053, at the end of the Electricity Purchase Agreement between the Project LP and British Columbia Hydro and Power Authority (rated AA (high) with a Stable trend by DBRS).

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.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action.