DBRS Upgrades Rating of Dufferin Wind Power Inc.’s Senior Secured Bonds to BBB (high) from BBB, Stable Trend

DBRS Limited (DBRS) upgraded the rating on the 4.317% Series 1 Senior Secured Bonds (the Bonds) issued by Dufferin Wind Power Inc. (the Issuer) to BBB (high) from BBB. The trend is Stable. In a previous rating report (October 27, 2017), DBRS stated that the limits on the quality and quantity of the collected on-site wind data precluded a higher rating before sufficient operational results. The current rating upgrade reflects the 91.4-megawatt Dufferin Wind Project’s (the Project) achievement of sufficient operational and production data (more than three full years), which DBRS believes validates the wind resource and energy production forecasts. The rating case financial projections are strong, demonstrating minimum and average semi-annual debt service coverage ratios (DSCRs) of 1.61 times (x) and 1.64x, respectively, consistent with a BBB (high) rating.

The Issuer is a special-purpose entity created to acquire, develop, own and operate the Project, which is located in Dufferin County, Ontario. The Issuer is indirectly and wholly owned by the Project Sponsor, China Longyuan Power Group Corporation Limited. All energy is sold directly into the Independent Electricity System Operator (IESO; rated A (high) with a Stable trend by DBRS) transmission grid under a Feed-In-Tariff Contract (the FIT Contract) that expires on November 30, 2034, which is 12 months after the scheduled full repayment of the Bonds. The $200 million Bonds were issued on October 22, 2015; approximately $179.5 million is currently outstanding.

Since achieving the Commercial Operations Date under the IESO FIT Contract on December 1, 2014, the Project has had 45 months of reported operating results. In 2017, the Project generated 276.6 gigawatt hours (GWh) at an average realized price of $147.4 per megawatt hour, which is 14.5% above the one-year P90 rating case of 241.6 GWh, and 4.4% below the P50 plan. Generated electricity in 2017 includes 14.8 GWh of curtailment above the annual cap of 2.5 GWh. The Project is compensated for foregone energy sales in excess of an annual and cumulative cap where the Project is curtailed by the IESO from generating energy when it is otherwise able to do so. The resulting DSCR for the full-year 2017 is 1.93x, well above the expected 1.61x in the rating case. For the first half of 2018 (H1 2018), the Project generated 154.0 GWh (versus 152.4 GWh in H1 2017) and revenue of $22.7 million (versus $22.1 million in H1 2017), resulting in a six-month DSCR of 1.96x. DBRS expects the Project to exceed the P90 rating case DSCR for full-year 2018.

The rating is constrained by (1) the inherent uncertainty of wind forecasts, (2) operations and maintenance cost management and (3) exposure to negative Hourly Ontario Energy Prices (HOEP). These risks are partially mitigated by the Project’s actual performance, ability to maintain cost discipline and minimal exposure to negative HOEP.

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

The principal methodology is Rating Wind Power Projects, 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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