DBRS Downgrades Issuer Rating and Senior Secured Bonds Rating of Brookfield Renewable Kwagis Holding Inc. and Changes Trend to Stable from Negative

DBRS Limited (DBRS) downgraded the Issuer Rating and the Series I Senior Secured Bonds (the Bonds) rating of Brookfield Renewable Kwagis Holding Inc. (the Issuer) to BBB (high) from A (low) and changed the trend to Stable from Negative.

The downgrade reflects the generation and revenue underperformance of the 45-megawatt run-of-river hydroelectric power-generating facility in British Columbia (the Project) compared with the long-term average generation (LTAG) and revenue target in place since the Project achieved commercial operations date (COD) on April 9, 2014. DBRS recognizes that hydrological variability for run-of-river projects can be large, and patterns can only be statistically significant over longer periods of time. However, the sustained under-generation over the past five years has resulted in a lower debt service coverage ratio profile (post capex) that is more consistent with similar projects rated BBB (high). For the five-year period since COD up to and including March 2019, cumulative generation is 14.5% below LTAG, and cumulative revenue is 17.9% below planned revenue. DBRS notes that the Project does not suffer from any specific operational issues other than water flow.

The Bonds are guaranteed by the Issuer’s project subsidiary, Kwagis Power Limited Partnership (the Project LP), and are secured by all assets of the Project. The $175 million Bonds start amortizing in 2024 and fully amortize in 2053, at the end of the Electricity Purchase Agreement between the Project LP and British Columbia Hydro and Power Authority (rated AA (high) with a Stable trend by DBRS).

In late 2018 and early 2019, Brookfield Renewable Partners L.P. (BEP) sold 50% of its interest in the Issuer under two separate transactions in a Canadian hydroelectric portfolio, which included the Project. The sale did not trigger a change of control nor have any negative implications for bondholders. BEP now owns 37.5% of the Issuer, which continues to own 75% of the Project LP.

DBRS will continue to monitor the Project’s performance against the LTAG and coverage ratios. Any revision to the LTAG in coordination with the Issuer will be reflected in future rating actions. DBRS may take further rating actions should there be a sustained improvement or deterioration in project performance and coverage ratios.

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.

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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