DBRS Morningstar Confirms Ratings on Bruce Power L.P. at BBB with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Notes rating of Bruce Power L.P. (BPLP) at BBB with Stable trends. The rating confirmations reflect BPLP’s stable business risk profile underpinned by the fixed-price Implementation Agreement and continuing robust credit metrics. The Stable trends reflect DBRS Morningstar's view that no material change to BPLP’s credit fundamentals are expected for the next 12 months. DBRS Morningstar believes that the ongoing Coronavirus Disease’s (COVID-19) near-term impact on BPLP is limited.

For 2019 and the last 12 months ended March 31, 2020, EBITDA of $1.7 billion and $1.8 billion, respectively, were at record levels, primarily driven by the increased contract prices. As a result, the key credit metrics continue at or above the upper end of the BBB rating category for the independent power producers rated by DBRS Morningstar. On April 9, 2020, BPLP issued new 10-year bonds of $600 million that will be used to pay down existing debt. The total debt level therefore would remain unchanged. In late March 2020, BPLP further expanded its credit facilities to $1 billion by entering into a new committed revolver of $200 million. These measures have further enhanced BPLP's liquidity position. On January 17, 2020, Unit 6 was safely removed from service, beginning the execution phase of the Major Component Replacement (MCR) project that will last for approximately four years. In late March 2020, as a result of coronavirus pandemic, BPLP reduced activities on the Unit 6 MCR project to essential tasks and issued a notice of force majeure to the Independent Electricity System Operator (rated A (high) with a Stable trend by DBRS Morningstar). The force majeure declaration is a precautionary measure for BPLP to preserve its rights to funding and scheduling flexibility under the Implementation Agreement. BPLP indicates that work on the critical path has restarted. DBRS Morningstar believes that the immediate impact is manageable, so long as the restrictions resulting from the coronavirus pandemic are being gradually lifted by the government.

BPLP is deemed an essential service at both provincial and federal levels, and as a result normal operations have continued with additional precautions in place. The impact on BPLP's 2020 financial performance will be insignificant given the continued operations and fixed price under the Implementation Agreement. For 2020, revenue and EBITDA are expected to decline, largely driven by the reduced electricity output as Unit 6 is now out of service, being partially offset by the increase in contract prices. Notwithstanding, DBRS Morningstar expects key credit metrics to remain at or above the upper end of the BBB rating category, because the expected lower revenue and EBITDA levels would still be strong in a historical context. The increases to capital expenditure will be primarily funded by mandatory capital calls to owners. As distributions start to level off, free cash flow deficit will likely diminish over the next few years to result in an overall stable debt level.

DBRS Morningstar expects the ratings to remain stable for the next 12 months for the reasons explained above. A ratings upgrade in the next couple of years is unlikely given that the complex life-extension projects are now in full swing. On the other hand, a ratings downgrade would likely be triggered by (1) a significant and sustained deterioration of credit metrics and/or (2) material cost overruns and delays associated with the upcoming life- extension projects.

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 Companies in the Independent Power Producer Industry (May 19, 2020), 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 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.

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].

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