Press Release

DBRS Morningstar Confirms BBB Ratings, Stable Trends, of Seven Solar Power Projects Owned by Concord Solar Energy Inc.

Project Finance
April 16, 2020

DBRS Limited (DBRS Morningstar) confirmed the following ratings of seven issuers and their related term loans for solar power projects (the Projects) owned by Concord Solar Energy Inc. (CSEI):

(1) Concord MightySolar Partnership
-- Issuer Rating at BBB, Stable trend
-- $50.6 million Term Loan (Due 6/30/2033) rating at BBB, Stable trend

(2) Concord Val Caron Partnership
-- Issuer Rating at BBB, Stable trend
-- $47.8 million Term Loan (Due 3/31/2032) rating at BBB, Stable trend

(3) Concord RayLight Partnership
-- Issuer Rating at BBB, Stable trend
-- $51.4 million Term Loan (Due 9/30/2033) rating at BBB, Stable trend

(4) Concord Aria Partnership
-- Issuer Rating at BBB, Stable trend
-- $52.8 million Term Loan (Due 9/30/2034) rating at BBB, Stable trend

(5) Concord EarthLight Partnership
-- Issuer Rating at BBB, Stable trend
-- $53.9 million Term Loan (Due 9/30/2034) rating at BBB, Stable trend

(6) Concord Alfred Partnership
-- Issuer Rating at BBB, Stable trend
-- $60.3 million Term Loan (Due 3/31/2035) rating at BBB, Stable trend

(7) Concord BeamLight Partnership
-- Issuer Rating at BBB, Stable trend
-- $57.6 million Term Loan (Due 12/31/2034) rating at BBB, Stable trend

The Projects consist of seven solar power generation facilities ranging in size from nine to 10 megawatts (alternate current) operating across Ontario since 2014–15, depending on the Project. Each Project is contracted under 20-year feed-in-tariff power purchase agreement (PPA) with the Independent Electricity System Operator (rated A (high) with a Stable trend by DBRS Morningstar) and connected to the Hydro One Networks Inc. distribution system. The PPAs expire in 2034 and 2035, eight to 24 months after the full amortization of the term loans, depending on the Project.

All seven Projects have separate stand-alone term loans but the same ownership. After a reorganization, the 99.9% ownership held by the general partners of all the individual Projects were transferred to a single entity, CSEI. As a result, the loans are linked by (1) the pledge of 100% of the equity interests in CSEI (which, in turn, owns 99.9% of all Projects) and the 0.1% owner of each of the Project partnerships; (2) a cross-default to any other outstanding debt; and (3) a cross-acceleration to the other term loans. Based on the cross-default and cross-acceleration, DBRS Morningstar considers each Issuer Rating and debt rating to be capped by the weakest rating of the seven issuers and their related term loans. DBRS Morningstar notes that lenders have the choice to exercise the cross-default if a default occurs at one of the seven issuers (i.e., the cross-default is not automatic to the other six Projects).

The assigned ratings are anchored by (1) the strength of the long-term, fixed-price PPAs with a highly rated offtaker extending at least six months beyond full debt amortization; (2) proven solar photovoltaic (PV) module technology and appropriate operating and maintenance arrangements with an experienced operator; (3) an enhanced project finance structure with features that include a comprehensive security package, segregated blocked accounts, a cash flow waterfall, debt service, and maintenance reserves as well as restrictive covenants; and (4) minimum debt service coverage ratios commensurate with the ratings of 1.35 times (x) to 1.36x in the DBRS Morningstar rating case, depending on the Project. The main constraints for the ratings include (1) cross-default and -acceleration of the loans, such that the ratings are capped by the weakest rating; (2) module degradation risk, as is typical for solar PV projects; and (3) variability of the solar energy resource, such that lower-than-expected solar insolation and system performance can negatively affect revenue and cash flow.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating Solar Power Projects, which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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