DBRS Morningstar Places Kingston Solar LP’s Ratings Under Review With Negative Implications

DBRS Limited (DBRS Morningstar) placed Kingston Solar LP’s (ProjectCo or the Issuer) Issuer Rating and the ratings of its 3.571% Series 1A-2016 Senior Secured Notes and 3.571% Series 1B-2016 Senior Secured Notes (together, the Notes) Under Review with Negative Implications. ProjectCo has experienced a number of unplanned sitewide outages since 2019. The latest incident at the site, which occurred in December 2021 (the December Event), has the potential to cause the whole site to go off line until mid-February 2022 or beyond. For details regarding prior unplanned outages, please see DBRS Morningstar’s rating reports for the Issuer published on November 8, 2021, and October 28, 2020.

On December 5, 2021, ProjectCo experienced a site trip and was forced to go off line. It was initially suspected that a fault had occurred inside the substation switchgear and involved one cell. Further investigation revealed that the majority of the remaining nine switchgear cells also experienced damages; therefore, it is not safe to restart and operate the site. According to management, ProjectCo has ordered spare parts to repair the damage, which are expected to arrive at site by the end of January. As a result, the entire site is expected to remain off line at least until mid-February.

ProjectCo expects the December Event to qualify as an insurable event under its casualty and business interruption insurance coverage. Currently, uncertainty remains regarding the insurance eligibility and timing of the insurance proceeds. However, management has confirmed that the Issuer will have sufficient cash available for its debt service payment due on January 31, 2022, without using the debt service reserve account (DSRA) or any potential insurance proceeds. DBRS Morningstar notes that the available DSRA funds will provide six months of emergency liquidity for the next payment due on July 31, 2022.

The Under Review with Negative Implications status reflects DBRS Morningstar’s view of a potential negative rating action caused by (1) liquidity concerns, as the site will remain off line until at least mid-February, with potential for further delay as a result of a late delivery of spare parts and/or repairment work; (2) uncertainty regarding insurance coverage and timing of the insurance proceeds for the December Event; and (3) long-term adverse impacts such as a higher insurance premium because of the frequent unplanned outages since 2019, although management still considers that all the unplanned outages since 2019 including the December Event have been isolated one-time events. The high frequency of such outages has also amplified uncertainty regarding ProjectCo's operational resiliency.

DBRS Morningstar may remove the ratings from Under Review with Negative Implications without any rating action if all of the following happens: (1) the site comes on line within the expected time frame and the December Event qualifies as an insurable event under casualty and business interruption insurance coverage, without any material deductions and (2) the site continues normal operations with no long-term adverse impacts from the December Event.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
The principal methodology is Rating Solar Power Projects (August 18, 2021; https://www.dbrsmorningstar.com/research/383184), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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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