DBRS Confirms Northland Power Solar Finance One L.P. at A (low) with a Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and the rating of the Senior Secured Amortizing Bonds, Series A (the Bonds) issued by Northland Power Solar Finance One L.P. (ProjectCo or the Issuer) at A (low). Both trends remain Stable. The Bonds, due June 30, 2032, have an outstanding balance of approximately $202 million. The rating confirmation reflects ProjectCo’s continuing robust performance (versus DBRS’s P90 rating case) despite lower-than-normal solar insolation levels experienced in Ontario in 2018.

ProjectCo’s debt obligations are guaranteed on a joint and several basis by the six project limited partnerships (Project LPs). The Project LPs are six operating solar photovoltaic power generating facilities with an aggregate capacity of 60 megawatts located across Ontario (together, the Facilities or the Project). The Facilities sell electricity to the Independent Electricity System Operator (rated A (high) with a Stable trend by DBRS) under six 20-year feed-in-tariff (FIT) contracts and are connected to Hydro One Networks Inc.’s low-voltage distribution systems, with no exposure to curtailment risk. The Bonds fully amortize before the FIT contracts expire.

The Project has had approximately five years of consistently strong operating and financial performance. In 2018, DBRS upgraded the original BBB (high) rating to A (low) (see February 15, 2018, press release), and the Bonds were further upsized by an additional $15 million with no negative impact on the rating (see March 29, 2018, press release). The Facilities continued to sustain a high availability ratio of 99.8% in 2018; the overall production was 5% higher than DBRS’s P90 rating-case forecast but 2% lower than the P50 level driven by the low solar insolation levels in Ontario. The debt service coverage ratio (DSCR) of 1.64 times (x) in 2018 was nonetheless higher than the expected 1.50x in DBRS’s rating case. The stronger-than-expected DSCR was driven by stronger-than-expected production (versus P90) and lower-than-budgeted operating costs.

The rating continues to be underpinned by (1) the strength of the 20-year fixed-price FIT contracts with a highly rated offtaker, (2) consistently strong performance and relatively low operating risk, (3) an enhanced project finance structure and (4) Northland Power Inc. as an experienced and capable owner-operator. The rating is constrained by (1) the long-term solar panel degradation risk and (2) revenue volatility driven by the variable energy resource and the expected performance ratio. As of February 2018, DBRS no longer assigns any value to the solar panel supplier SunEdison Inc.’s panel performance warranties as a result of its restructuring under bankruptcy. Nonetheless, DBRS does not expect the absence of warranties to adversely affect the Project going forward.

DBRS expects the rating to remain Stable for the next 12 months, however, material and sustained underperformance (versus the rating case) could trigger a negative rating action; a positive rating action for the moment is unlikely given that the rating-case DSCR of 1.53x is at the lower end of the A-rating category.

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

PXX means exceedance probabilities. P50, P90 and P99 values describe estimated minimum electricity generation with a probability of 50%, 90% or 99%, respectively, in any given year (P50, one-year P90 and one-year P99). Unless otherwise specified, all PXX values in the press release are in reference to one-year PXX values adjusted by DBRS, which considers availability and degradation factors.

The principal methodology is Rating Solar 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.

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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