DBRS Confirms Cory Cogeneration Funding Corporation at BBB (high) with Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating as well as the ratings of the 7.586% Senior Secured Project Bonds, Series A and the 7.601% Senior Secured Project Bonds, Series B (collectively, the Bonds) of Cory Cogeneration Funding Corporation (the Issuer) at BBB (high). All trends remain Stable. The confirmations reflect the continued performance of the Issuer’s only asset, the Cory Cogeneration Station (the Station or the Project), in line with DBRS’s expectations. The Station is organized as a joint venture, with financial reporting as Cory Cogeneration Station Joint Venture (Cory JV). The Issuer’s financial performance depends entirely on, and is reflected by, the performance of Cory JV.

The Power Purchase Agreement (PPA) insulates the Issuer from electricity and fuel prices and supply/demand risks. Most of the actual tariff revenue (as opposed to revenue recognized by International Financial Reporting Standards), which was approximately 84% in 2017, is paid for the Station to be available and to cover fixed costs. The remaining variable component of revenue is paid on the basis of running hours and start-ups of the combustion and steam turbines. The Station operates in baseload mode, and additional dispatch depends on system demand based on instructions provided by Saskatchewan Power Corporation (rated AA/R-1 (high) with Stable trends by DBRS). Although variable, the dispatch regime has shown steady utilization of the Station. The average debt service coverage ratio (DSCR) in the five-year period between 2013 and 2017 was 1.42 times (x).

The DSCR for 2017 was healthy at 1.52x, which is consistent with the assigned ratings. The Station’s low availability of 92.3% in 2017 was largely because of major inspection and rewind of gas turbine #1, making the unit unavailable for the entire month of October, that resulted in slightly lower overall tariff revenue; however, reduced tariff revenue was offset by lower than planned plant and equipment maintenance costs. For the first nine months of 2018, the DSCR was strong at 1.84x and is projected to remain robust for FY 2018. In 2019 and beyond, the DSCR is expected to remain healthy, reflective of stable operational performance. Overall, the Station is meeting its efficiency and availability requirements under the PPA. If the financial performance shows a consistent improvement, DBRS may take a positive rating action. However, if the Project experiences a sustained increase in operating and maintenance expenses and/or reduced availability with significant impacts on the DSCR or deterioration in the credit profile of the Project owners, an adverse rating action may be considered by DBRS. DBRS noted that Canadian Utilities Limited announced that it is exploring strategic alternatives for its Canadian electricity generation business, which included the Station. DBRS will continue to monitor the process for any credit impact.

Notes:
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.

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