DBRS Confirms Ratings on Dufferin Wind Power Inc. at BBB (high) with Stable Trends

DBRS Limited (DBRS) confirmed Dufferin Wind Power Inc.’s (the Issuer) Issuer Rating and the rating on the Issuer’s 4.317% Series 1 Senior Secured Bonds due November 30, 2033 (the Bonds) at BBB (high) with Stable trends. The Issuer is a special-purpose entity created to acquire, develop, own and operate the 91.4-megawatt Dufferin Wind project (the Project) located in Dufferin County, Ontario. The Issuer is indirectly and wholly owned by the Project Sponsor, China Longyuan Power Group Corporation Limited. All energy is sold directly into the Independent Electricity System Operator (the IESO; rated A (high) with a Stable trend by DBRS) transmission grid under a Feed-In-Tariff Contract (the IESO FIT Contract) that expires on November 30, 2034, which is 12 months after the scheduled full repayment of the Bonds. The $200 million Bonds were issued on October 22, 2015; approximately $170.7 million is currently outstanding.

Since achieving the Commercial Operations Date under the IESO FIT Contract on December 1, 2014, the Project has had four and a half years of reported operating results. In 2018, the Project generated 274.4 gigawatt hours (GWh) at an average realized price of $149.0 per megawatt hour. This generation level is 13.6% above the one-year P90 rating case of 241.6 GWh, 14.0% above the P75 plan of 270.6 GWh but 9.5% below the P50 plan of 289.2 GWh because of a lower wind resource. Generated electricity in 2018 includes 8.2 GWh of curtailment above the annual cap of 2.5 GWh. The Project is compensated for foregone energy sales in excess of an annual and cumulative cap where the Project is curtailed by the IESO from generating energy when it is otherwise able to do so. The resulting debt-service coverage ratio (DSCR) for full-year 2018 is 1.93 times (x), similar to 2017, well above the expected 1.61x in the rating case. For the first half of 2019 (H1 2019), the Project generated 146.5 GWh (compared with 154.0 GWh in H1 2018) and revenue of $21.8 million (compared with $22.7 million in H1 2018), resulting in a six-month DSCR of 1.80x. DBRS expects the Project to exceed the P90 rating-case DSCR for full-year 2019.

The rating is supported by (1) the IESO FIT Contract; (2) robust financial performance and rating-case financial projections demonstrating minimum and average semi-annual DSCRs of 1.61x and 1.64x, respectively, consistent with a BBB (high) rating; and (3) the operating and maintenance (O&M) arrangement with General Electric, the original equipment manufacturer. The rating is constrained by (1) the inherent uncertainty of wind forecasts and resource variability, (2) O&M cost management and (3) some exposure to negative Hourly Ontario Energy Price (HOEP) prices. These risks are partially mitigated by the Project’s actual performance, ability to maintain cost discipline and negligible impact of negative HOEP prices. If the project continues its strong performance consistently for the next several years, including cost discipline and adequate maintenance, DBRS may take a positive rating action.

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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