DBRS Morningstar Confirms Issuer and Debt Ratings on Seven Solar Power Projects Owned by Concord Solar Energy Inc.; All Trends Are Stable

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

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

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

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

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

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

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

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

All trends are Stable.

RATING RATIONALE/DESCRIPTION
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 a 20-year feed-in-tariff power purchase agreement (PPA) with the Independent Electricity System Operator 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 they have the same ownership. After a reorganization, the 99.9% ownership stakes held by general partners of all the individual Projects were consolidated into a single entity, CSEI. As a result, the loans are linked by the pledge of 100.0% 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; a cross default to any other outstanding debt; and a cross acceleration to the other term loans. Based on the cross default and cross acceleration, DBRS Morningstar caps each Issuer Rating and debt rating at 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 ratings are anchored by (1) the strength of the long-term, fixed-price PPAs with a strong credit quality 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, and restrictive covenants; and (4) minimum debt service coverage ratios (DSCRs) 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) variability of the solar energy resource (particularly as a result of snowfall in winter), such that lower-than-expected solar insolation and system performance can negatively affect revenue and cash flow; and (3) module degradation risk, as is typical for solar PV projects.

RATING DRIVERS
DBRS Morningstar notes that a material and sustained financial underperformance of a project with commensurate DSCRs compared with the rating case could cause a negative rating action. A material consistent outperformance compared with the rating case may cause a positive rating action.

ENVIRONMENTAL, SOCIAL, GOVERNANCE 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 (May 17, 2022) https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Solar Power Projects (September 6, 2022), https://www.dbrsmorningstar.com/research/402404/global-methodology-for-rating-solar-power-projects

The following criteria has also been applied:
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023), https://www.dbrsmorningstar.com/research/411694/dbrs-morningstar-global-criteria-guarantees-and-other-forms-of-support

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 rating was not initiated at the request of the rated entity.
The rating was initiated at the request of a third party.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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