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

DBRS, Inc. (DBRS Morningstar) confirmed the Issuer Rating and the rating on the Series 1 Senior Secured Amortizing Notes (the Notes) of Trillium Windpower, LP (the Issuer) at BBB (high) with Stable trends. The Notes, which fully amortize on February 15, 2033, had $200.4 million of the $315.5 million principal outstanding as of September 30, 2023.

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.

CREDIT RATING RATIONALE
The rating confirmations reflect the Project's relatively consistent electricity generation, with a reliable operating and financial performance of more than nine years. Actual debt service coverage ratios (DSCRs) have generally been well above the rating-case minimum DSCR of 1.46 times (x), averaging 1.57x over the nine-year period since 2014.

However, for the last 12 months ended September 30, 2023 (LTM 2023) and for full-year 2021, DBRS Morningstar calculates the DSCRs dropping below the rating-case minimum levels, to 1.36x and 1.41x, respectively. The lower DSCRs in both periods were primarily the result of weak wind resource combined with higher operating and maintenance (O&M) and parts and materials costs related to the timing of purchases. In LTM 2023, there were also unplanned repairs to turbines and the substation at Conestogo in Q1 2023, and an increased frequency of pitch cylinder replacements, oil cooling faults, and pitch system faults brought on by bat curtailment protocols at both facilities in Q3 2023. DBRS Morningstar believes the decreased generation in LTM 2023 compared with previous years is common in the wind power industry because of weather patterns; the annual generation fluctuation is still within normal range.

Average wind turbine technical availability has typically been above plan, although it was slightly lower in LTM 2023, with availability at 92.6% for Summerhaven and 95.7% for Conestogo. DBRS Morningstar will be closely monitoring future availability factors to determine whether a downward trend that may have an impact on the ratings is developing. The Project’s Summerhaven facility is subject to economic curtailment but almost all curtailment is compensated for by the IESO, which estimates the forgone energy that would have been generated free of curtailment based on the wind resource and other assumptions.

The ratings are supported by (1) the fixed-price FIT contract, (2) the Project's strong and consistent operating track record, and (3) the strength of the sponsor-owner and operator. The ratings are constrained by (1) the inherent uncertainty of wind forecasts, (2) O&M cost management, and (3) some exposure to negative hourly Ontario energy price (HOEP) at the Summerhaven wind farm. These risks are partially mitigated by the Project’s generally strong actual performance, ability to maintain cost discipline, and bidding strategy that largely eliminates negative HOEP exposure.

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 a subsidiary of Axium Infrastructure Inc.'s managed investment funds 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 a Management Services Agreement in place.

CREDIT RATING DRIVERS
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, particularly related to lower availability factors or a longer-term downward shift in wind resource.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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 (July 4, 2023) at https://www.dbrsmorningstar.com/research/416784.

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Wind Power Projects (September 12, 2023; https://www.dbrsmorningstar.com/research/420440)

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)

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.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit 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 credit ratings are under regular surveillance.

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

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