DBRS Morningstar Confirms Brilliant Power Corporation at A (high), Stable

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the Series A Bonds, Series B Bonds, and Series C Bonds (collectively, the Project Bonds) ratings of Brilliant Power Corporation (BPC or the Company) at A (high) with Stable trends. All three tranches of the Project Bonds will fully amortize by the maturity date of May 31, 2026. BPC is a nontaxable single-purpose Crown corporation indirectly owned by the Province of British Columbia (British Columbia; rated AA (high) with a Stable trend by DBRS Morningstar). BPC owns and operates a 149-megawatt hydroelectric generation facility and the Brilliant Terminal Station transmission assets (together, the Project) in the Kootenay-Columbia region of British Columbia.

The rating confirmations reflect the Company’s consistently strong operating and financial performances over the 18-month review period to September 30, 2019. The debt service coverage ratio (DSCR) of 1.83 times for both F2019 (ended March 31, 2019) and the first six months of F2020 (ended September 30, 2019) continues to be strong for the current rating levels. DBRS Morningstar expects the DSCR to increase over time, primarily driven by the tariff escalator under the primary power purchase agreement (PPA) with FortisBC Inc. (FortisBC; rated A (low) with a Stable trend by DBRS Morningstar).

The Company’s stable and strong credit fundamentals are driven by (1) the highly predictable cash flow due to the cost-of-service-type PPA, which transfers virtually all revenue risk and operating cost to FortisBC until debt maturity (the capital expenditures are also recoverable under the PPA); (2) the contractual transfer of hydrology risk to British Columbia Hydro and Power Authority (BC Hydro; rated AA (high) with a Stable trend by DBRS Morningstar) under the Canal Plant Agreement to 2035 (beyond debt maturity); and (3) additional support from a backstop PPA (the Backstop PPA) with Powerex Corp. (Powerex), a wholly owned subsidiary of BC Hydro. A project entity’s rating is usually constrained by the primary offtaker’s rating—in this case, FortisBC’s A (low) rating. However, DBRS Morningstar believes that the Project benefits from the credit quality of the higher-rated BC Hydro through the Backstop PPA given its 100% ownership in Powerex and interlocking board structures. Furthermore, DBRS Morningstar expects that the PPA would likely survive a hypothetical FortisBC default scenario given the Project’s strategic importance as one of FortisBC’s primary energy-supply sources. As such, DBRS Morningstar determines that the ratings are not constrained by the primary offtaker’s rating.

DBRS Morningstar expects the ratings to remain stable for the next 12 months. An upgrade is unlikely given that the ratings have already reached the rating cap for single-asset power projects according to DBRS Morningstar’s “Rating Project Finance” methodology. A downgrade could be driven by (1) a weakening of BC Hydro’s credit support as a result of decoupling Powerex from its corporate structure or (2) a material and protracted deterioration of BPC’s operating and financial metrics.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada