DBRS Changes Trend on Trillium Windpower, LP to Positive from Stable and Confirms Ratings at BBB

DBRS Limited (DBRS) changed the trend on Trillium Windpower, LP’s (the Issuer) Issuer Rating and Series 1 Senior Secured Amortizing Notes rating (the Notes) to Positive from Stable. DBRS also confirmed all ratings at BBB. The Issuer is a special-purpose entity created to finance and indirectly own the 22.9 megawatt (MW) Conestogo and 124.4 MW Summerhaven wind farms in Ontario (together, the Project). The trend change reflects the Project’s strong operating performance at or above the P50 targeted generation since the first full year of operation (2014) up to Q3 2018 with commensurate revenue and debt service coverage ratios (DSCRs) above those appropriate for the current rating level.

The Issuer is indirectly and wholly owned by Cordelio Power Inc. (Cordelio Power) through wholly owned subsidiaries. On June 29, 2018, a subsidiary of NextEra Energy Partners LP (whose parent company is NextEra Energy, Inc.) completed the sale of NextEra Energy Canada Partners Holdings, ULC, the former Project owner, to Cordelio Power. Headquartered in Toronto, Cordelio Power was launched in June 2018 by the Canada Pension Plan Investment Board (rated AAA with a Stable trend by DBRS) to complete the purchase of a portfolio of wind and solar assets in Ontario. The Project continues to be operated by NextEra Energy Canada Operating Services, Inc. with no change in contracts. The administration of the Project, however, is now conducted by Cordelio AdminCo Inc., a wholly owned subsidiary of Cordelio Power, with new Administrative Service Agreements in place.

Average wind turbine technical availability has been above target with no reported major component failures. The Project’s Summerhaven facility is subject to economic curtailment, but is compensated for almost all curtailment by the Independent Electricity System Operator (IESO; rated A (high) with a Stable trend by DBRS), which forecasts the foregone energy that would have been generated free of curtailment based on the wind resource and other assumptions. Incorporating curtailment, the Project would be approximately 104% of the P50 rating case for 2017 and 104% for the last 12 months (LTM) ended September 2018. Operating expenses for 2017 exceed the rating-case projections by only 2%, representing approximately 13% of operating revenues. For year-to-date September 20, 2018, operating expenses were 7.5% below plan. The strong generation (including the IESO-compensated foregone production) resulted in Project revenue exceeding the P90 rating-case and the P50 rating-case revenue level, yielding DSCRs of 1.63 times (x) and 1.71x for 2017 and the LTM ended September 2018, respectively, well above the minimum rating-case DSCR of 1.46x. The Projects benefit from attractive long-term fixed-power prices under Feed-in Tariff contracts with the IESO for 20-year terms.

DBRS may upgrade the rating if production and financial results for full-year 2018 show continued Project performance at or above the P50 level, including any curtailed production (i.e., five full years of such overperformance with commensurate DSCRs). The ratings are constrained by (1) inherent uncertainty with wind forecasts, (2) operating and maintenance cost management and (3) exposure to negative hourly Ontario energy price (HOEP) prices for the Summerhaven wind farm. These risks are partially mitigated due to the Project’s strong actual performance, ability to maintain cost discipline and a bidding strategy that largely eliminates negative HOEP price exposure.

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 & Criteria.

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. If you are interested in receiving this report, contact us at info@dbrs.com.