DBRS Confirms Ratings on Arrow Lakes Power Corporation at A (high) with Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Series B Bonds (the Bonds) rating on Arrow Lakes Power Corporation (ALPC or the Company) at A (high) with Stable trends. The 5.516% $350 million Bonds will be fully amortized by the maturity date of April 5, 2041, four years before the expiry of the Electricity Purchase Agreement (EPA). ALPC is a single-purpose entity that owns and operates a 185-megawatt hydroelectric power station and associated transmission line (the Project). The Company is a tax-exempt Crown corporation indirectly owned by the Province of British Columbia (the Province; rated AA (high) with a Stable trend by DBRS). The rating confirmation reflects the Project’s highly predictable cash flow and debt service coverage ratio (DSCR) underpinned by: (1) the Keenleyside Entitlement Agreement (the Entitlement Agreement) and the EPA, essentially eliminating the hydrology and price risks; (2) reliable and low-cost characteristics of the underlying hydro assets; and (3) a projected minimum DSCR of 1.84 times (x) from 2019 until Bond maturity with an average of 2.09x. The ratings also consider the strong credit profile of British Columbia Hydro and Power Authority (BC Hydro; rated AA (high) with a Stable trend by DBRS), which is the counterparty for the Entitlement Agreement and the EPA.

Project cash flow increased modestly over the fiscal year ended March 2018, primarily because of higher realized prices and lower sustaining capex resulting from some projects being moved to the next fiscal year. At the same time, the Project incurred a higher debt service in 2018 as 2017 saw only one-half year of amortization after the Bonds began amortizing in October 2016. Despite a full year’s amortization, the Project realized a DSCR of 2.17x for the year ended March 2018, which is supportive of the current rating category. Over the 12 months ended December 2018, the DSCR remained strong at 2.16x as the facility continued maintaining low outage rates. DBRS expects the current A (high) rating to remain stable in the absence of any major operating failure causing unexpected high outages and/or higher maintenance capex.

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.

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.

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