DBRS Morningstar Confirms Ratings on Trillium Windpower, LP at BBB (high) With Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Series 1 Senior Secured Amortizing Notes (the Notes) rating of Trillium Windpower, LP (the Issuer) at BBB (high) with Stable trends. The Notes, which fully amortize on February 15, 2033, had $215 million of the $315 million principal outstanding as of September 30, 2022.

The Issuer is a special-purpose entity created to finance and indirectly own the 22.9-megawatt (MW) Conestogo and 124.4-MW Summerhaven wind farms in Ontario (collectively, the Project). The Project benefits from long-term fixed-power prices under feed-in tariff (FIT) contracts with the Independent Electricity System Operator (IESO) for 20 years. The Coronavirus Disease (COVID-19) pandemic has not materially affected the Issuer’s operations or financial performance.

The rating confirmations reflect the Project's continued and consistently strong electricity generation, with a reliable operating and financial performance of more than eight years. Actual debt service coverage ratios (DSCRs) have been well above the rating-case minimum DSCR of 1.46 times (x), averaging 1.57x over the eight-year period since 2014. In 2021, the DSCR dropped below rating-case minimum levels to 1.41x, which was largely driven by (1) weak resource and (2) higher than budgeted operating and maintenance (O&M) costs because of the timing of parts. For the last 12 months ended September 30, 2022, the DSCR remained commensurate with the rating level at 1.54x, indicating that the wind resource in 2022 operating period is expected to be in line with historical levels. DBRS Morningstar believes the generation decrease in 2021 compared with the previous years is common in the wind power industry because of the weather patterns; the annual generation fluctuation is still within normal range.

The Issuer is majority (51%) owned by Cordelio Power LP (Cordelio Power) through wholly owned subsidiaries, having purchased in 2018 the entity that formerly owned the Project (NextEra Energy Canada Partners Holdings, ULC) from NextEra Energy Partners LP (whose parent company is NextEra Energy, Inc.). The remaining 49% is owned by Axium Infrastructure as of January 2021. Headquartered in Toronto, Cordelio Power was launched in June 2018 by the Canada Pension Plan Investment Board (CPPIB; rated AAA with a Stable trend by DBRS Morningstar) to complete the purchase of a portfolio of wind and solar assets in Ontario. The Project continues to be operated by NextEra Energy Canada Operating Services, Inc. with no change in contracts. Cordelio AdminCo Inc., an indirect wholly owned subsidiary of CPPIB, administers the Project, with Administrative Service Agreements in place.

The ratings are supported by the fixed-price FIT contract, the Project's strong and consistent operating track record, and the strength of the owner and operator. The ratings are constrained by the inherent uncertainty with wind forecasts, O&M cost management, and exposure to negative hourly Ontario energy price (HOEP) for the Summerhaven wind farm. These risks are partially mitigated by the Project’s strong actual performance, ability to maintain cost discipline, and bidding strategy that largely eliminates negative HOEP exposure. The Summerhaven wind farm is subject to economic curtailment but is compensated for almost all curtailment by the IESO, which forecasts the foregone energy that would have been generated free of curtailment based on the wind resource and other assumptions.

A further rating upgrade is unlikely in the near future. DBRS Morningstar may take a negative rating action if there is material and sustained underperformance.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929.

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

The principal methodologies are Global Methodology for Rating Wind Power Projects (September 6, 2022; https://www.dbrsmorningstar.com/research/402407) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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 the 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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