DBRS Confirms Grand Renewable Solar LP’s Series 1A and 1B Senior Notes to BBB with a Stable Trend

DBRS Limited (DBRS) confirmed the ratings of BBB with Stable trends on the 3.926% Series 1A-2016 Senior Secured Notes and the 3.926% Series 1B-2016 Senior Secured Notes (collectively, the Notes) issued by Grand Renewable Solar LP (ProjectCo). The Notes, with an outstanding balance of approximately $565.1 million, rank pari passu and will fully amortize by the January 31, 2035, maturity date. The rating confirmations reflect ProjectCo’s relatively stable performance over the last three years, which matched DBRS’s expectations.

ProjectCo, a special-purpose vehicle, owns and operates a 100-megawatt alternating current (MWac) ground-mounted solar-photovoltaic (PV) generation facility in Haldimand County, Ontario. It also owns a 50% interest in the associated 20-kilometre (km) transmission facilities (the T-Line) connecting the solar PV facility to Hydro One Networks Inc.’s (HONI) electricity grid (collectively, the Project or the Facility). ProjectCo sells all generated electricity to the Independent Electricity System Operator (IESO; rated A (high) with a Stable trend by DBRS) under a 20-year fixed-price power purchase agreement (PPA) until March 30, 2035 – two months after the Notes mature.

For the 12-month periods ended December 31, 2017, and March 31, 2018 (financial reporting dates), generation was 94.6% and 95.4% of the P50 forecasts, respectively, slightly exceeding one-year P90 rating-case scenarios. The DBRS-adjusted debt service coverage ratio (DSCR) of 1.40 times (x) and 1.41x for the 12-month periods ended December 31, 2017, and March 31, 2018, respectively, matched the forecast 1.40x in the rating case. The heavier-than-normal winter precipitation in the region led to the overall generation below the P50 forecast for the review periods. By DBRS’s estimate, Haldimand County experienced approximately 46%, 96% and 57% more precipitation in January, March and April 2017 than the historical average levels for the comparable month respectively. For the past three years, the Facility has been running relatively smoothly and sustained a high average availability ratio of approximately 99%. So far, no noticeable module degradation has been detected; however, DBRS notes that the winter performance continues to be subpar, primarily driven by heavy rain and snowfall, leading to lower than expected solar insolation in these months. To date, the curtailment loss has been sufficiently compensated by the IESO under the PPA. The module warranty provider’s (Canadian Solar Inc.) credit quality has been weakening over the past two years; that said, DBRS does not expect this to have an adverse effect on future ratings because of an enhanced project finance structure.

The BBB ratings continue to be underpinned by (1) the 20-year fixed-price PPA with a highly rated offtaker, (2) the limited operating risk expected because of the proven technology and (3) an enhanced project finance structure. The ratings are constrained by (1) long-term module degradation risk, (2) exposure to long-term warranty providers with relatively weak credit quality and (3) revenue variability, which is tied to a variable energy resource and the Facility’s performance ratio. These risks are partially mitigated by the conservative P90 rating-case projections and a reserving remediation mechanism in case the modules degrade faster than expected. DBRS is maintaining its rating-case projection of a constant DSCR at 1.40x for the remaining debt term. DBRS expects the trends on the ratings to remain Stable for the next 12 months; however, material and sustained underperformance (versus the rating case) could cause a negative rating action while a positive rating action could follow if the Project performs above the P50 levels on a continuous basis, impelling the DSCR to increase to above 1.50x for a sustainable period.

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

PXX means exceedance probabilities. A P50-P90-P99 value describes estimated minimum electricity generation with a probability of 50%, 90% or 99% in any given year (P50, one-year P90 and one-year P99). Unless otherwise specified, all PXX values are in reference to one-year PXX values, adjusted by DBRS, considering availability, degradation and curtailment factors.

Source: climate.weather.gc.ca and www.accuweather.com. Brantford, Ontario, is taken as proxy for Haldimand County weather.

Solar insolation is the amount of electromagnetic energy (solar radiation) incident on the surface of the earth. The units used to express solar insolation levels are generally expressed in kWh/m2/day, which is the amount of solar energy that strikes a square metre of the earth’s surface in a single day.

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 principal methodology is Rating Solar Power Projects (February 2018) which can be found on www.dbrs.com under Methodologies.

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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