DBRS Morningstar Confirms Ratings on North Battleford Power L.P. at A (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed North Battleford Power L.P.’s (ProjectCo or the Issuer) Issuer Rating and Series A Senior Secured Amortizing Bonds (the Bonds) rating at A (low) with Stable trends. Northland Power Inc. wholly owns the ProjectCo, a limited partnership and special-purpose vehicle that owns and operates a 295-megawatt (maximum production capacity) combined-cycle baseload power generation facility that has been in operation since June 5, 2013. The facility benefits from a 20-year baseload power purchase agreement (PPA) with Saskatchewan Power Corporation (rated AA (low) with a Stable trend by DBRS Morningstar) that expires in June 2033. The project is located approximately 150 kilometres northwest of Saskatoon on land owned by the Issuer.

On June 30, 2020, ProjectCo issued incremental pari passu bonds of $44.0 million, permissible under the Trust Indenture, in addition to the existing bonds of $667.3 million ($533.2 million debt outstanding as of June 30, 2020) issued in 2013 (please see DBRS Morningstar’s press release dated July 2, 2020). The Bonds are fully amortizing and mature on December 31, 2032, approximately six months prior to the PPA expiration date. As a result of the debt upsizing, DBRS Morningstar expects the minimum debt service coverage ratio (DSCR) to drop to 1.51 times (x) from 1.77x. The average projected DSCR will remain healthy at approximately 1.75x from July 2020 to December 2032. The minimum DSCR occurs in 2029 because a gas turbine rotor replacement, originally scheduled for 2028, will now occur in 2029. Other than the one-year DSCR drop in 2029, DBRS Morningstar projects that the DSCR range will be between 1.69x and 1.95x during the term of the debt, which remains supportive of the A (low) rating. All other terms will also remain unchanged, except for a revised amortization schedule.

The project continues to perform well and ProjectCo’s operating results for 2019 and the last 12 months ended June 2020 (LTM 2020) exceeded projections under DBRS Morningstar’s rating case. The DSCR of 2.03x and 2.05x for 2019 and the LTM 2020, respectively, exceeded projections for the period. Overall plant availability of 97.6% in 2019 and the LTM 2020 also surpassed projections.

If the project experiences sustained deterioration in its performance and/or increased operations and maintenance expenses with significant impact on the DSCR, DBRS Morningstar may consider a negative rating action.

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 Project Finance (September 1, 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.

DBRS Morningstar 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 [email protected].

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

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