DBRS Confirms Kingston Solar LP at BBB with Stable Trends

DBRS Limited (DBRS) confirmed the ratings of BBB with Stable trends on both the 3.571% Series 1A-2016 Senior Secured Notes and the 3.571% Series 1B-2016 Senior Secured Notes (collectively, the Notes) issued by Kingston Solar LP (ProjectCo or the Issuer). The two tranches of Notes (original amount: $632.97 million; outstanding balance: approximately $582.8 million), rank pari passu and will fully amortize by the July 31, 2035, maturity date. ProjectCo sells all electricity generated to the Independent Electricity System Operator (rated A (high) with a Stable trend by DBRS) under a 20-year, fixed-price power purchase agreement (PPA) expiring September 24, 2035, approximately two months after the Notes mature. ProjectCo, a special-purpose vehicle, owns and operates a 100-megawatt alternating current ground-mounted solar photovoltaic generation facility (the Facility) in the City of Kingston and Loyalist Township, Ontario. The Facility connects via a 200-metre generator tie line to Hydro One Networks Inc.’s electricity grid. The rating confirmations reflect ProjectCo’s stable operating and financial performances in 2017 and the last twelve months ending June 30, 2018, matching DBRS’s expectations.

The Facility has had approximately three years of reliable operating history, with a high availability of approximately 99% (except for scheduled maintenance). For the 12-month periods ended December 31, 2017, and June 30, 2018, generation was 99.0% and 100.4% of the one-year P90* rating-case forecasts, respectively. The DBRS-adjusted debt service coverage ratios (DSCRs) were 1.40 times (x) and 1.42x for the corresponding periods, approximately matching 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. In addition to the higher precipitation, the Facility also experienced less than expected solar insolation, which remains within intra-annual variability in solar insolation levels**.

The current ratings are anchored by (1) the strength of the 20-year, fixed-price PPA with a highly rated offtaker; (2) the limited operating risk because of the proven technology; and (3) an enhanced project finance structure. The ratings are constrained by (1) the 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.

DBRS is maintaining its rating-case projection of a constant DSCR at 1.40x for the remaining debt term. Given a stressed P99 scenario, the DSCR is considered reasonably resilient at 1.33x. 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 performance is consistently at or above the P50 levels, impelling the DSCR to increase to 1.50x or above for a sustainable period.

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

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

∗ 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 in this report are in reference to one-year PXX values, adjusted by DBRS, considering availability, degradation and curtailment factors.

∗∗ 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 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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