DBRS Confirms Brilliant Power Corporation at A (high), Stable

DBRS Limited (DBRS) confirmed the Issuer Rating, Series A Bonds, Series B Bonds and Series C Bonds (collectively, the Project Bonds) ratings of Brilliant Power Corporation (BPC or the Company) at A (high), all with Stable trends. All three tranches of the Project Bonds will fully amortize by the maturity date of May 31, 2026. BPC is a non-taxable, single-purpose Crown corporation indirectly owned by the Province of British Columbia (British Columbia or the Province; rated AA (high) with a Stable trend by DBRS). BPC owns and operates a 145-megawatt hydroelectric generation facility as well as the Brilliant Terminal Station transmission assets (the Project) in the Kootenay-Columbia region of British Columbia.

The ratings confirmation reflects the Project’s consistently robust financial performance over the 21-month review period to December 31, 2018. Debt-service coverage ratios (DSCRs) of 1.83 times (x) for F2018 (ended March 31, 2018) and 1.91x for the first nine months (ended December 31, 2018) of F2019 continue to be strong for the current rating levels. DBRS expects the DSCR to increase over time, primarily driven by tariff escalators under the primary power purchase agreement (PPA) with FortisBC Inc. (FortisBC; rated A (low) with a Stable trend by DBRS).

The Company’s very stable credit fundamentals are driven by (1) the highly predictable cash flow resulting from the long-term PPA of a cost-of-service nature, which transfers virtually all revenue, operating cost and capital expenditure risks to FortisBC until debt maturity; (2) the contractual transfer of hydrology risk to British Columbia Hydro and Power Authority (BC Hydro; rated AA (high) with a Stable trend by DBRS) under the Canal Plant Agreement to 2035 (beyond debt maturity); and (3) additional support from a backstop PPA (the Backstop PPA) with Powerex Corporation (Powerex), a wholly owned subsidiary of BC Hydro. A project entity’s rating is usually constrained by the primary offtaker’s rating — in this case, FortisBC’s A (low) rating. However, DBRS believes that the Project also benefits from implicit support from the higher-rated BC Hydro under the Backstop PPA given its 100% ownership in Powerex and the interlocking board structures. Furthermore, DBRS expects that the PPA would likely survive under a hypothetical FortisBC default scenario given the Project’s strategic importance as one of FortisBC’s primary energy-supply sources. As such, the assigned ratings are higher than the primary offtaker’s (FortisBC).

DBRS expects the ratings to remain stable for the next 12 months, barring any unforeseen adverse event(s). An upgrade is unlikely given that the ratings have already reached the rating cap for single-asset power projects according to DBRS’s “Rating Project Finance” methodology. A downgrade could be driven by any of the following: (1) a weakening of BC Hydro’s implicit support as a result of decoupling Powerex from its corporate structure or (2) a material and protracted deterioration of BPC’s operating and financial metrics.

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 & 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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