Morningstar DBRS Confirms Kingston Solar LP at BBB With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Kingston Solar LP's (ProjectCo or the Issuer) Issuer Rating as well as the credit ratings of its 3.571% Series 1A-2016 Senior Secured Notes and 3.571% Series 1B-2016 Senior Secured Notes (together, the Notes) at BBB with Stable trends. ProjectCo is a special-purpose vehicle that owns and operates a 100-megawatt alternating-current ground-mounted solar photovoltaic generation facility (the Project) in the City of Kingston and Loyalist Township, Ontario. ProjectCo sells all electricity generated to the Independent Electricity System Operator (IESO) under a 20-year, fixed-price power purchase agreement (PPA). The credit rating confirmations reflect ProjectCo's relatively stable performance for the last 12 months (LTM) ended December 31, 2023.

KEY CREDIT RATING CONSIDERATIONS
For the LTM ended December 31, 2023, generation was 97.2% of the one-year P90 rating-case forecasts. Morningstar DBRS notes generation was lower driven by significant snow cover during winter months and solar resource shortfall during the summer months. Additionally, the site was offline from November 20, 2023, to November 28, 2023, to conduct switch gear modifications related to a forced outage in December 2021. Nonetheless, the overall debt service coverage ratio (DSCR) for 2023 was stable at 1.40 times (x), consistent with the rating-case forecast. The lower generation revenue was offset by high interest income earned and lower-than-expected costs. The Morningstar DBRS-adjusted DSCR is slightly higher at 1.42x and was calculated by excluding the impact of the downtime in November 2023. The DSCR levels continue to support the current credit ratings. Morningstar DBRS expects the Project to perform as expected for the foreseeable future.

CREDIT RATING DRIVERS
Morningstar DBRS notes that frequent forced outages as well as material and sustained underperformance (versus the rating case) could cause a negative credit rating action in the future. A positive credit rating action is unlikely in the near to medium term.

FINANCIAL OUTLOOK
Morningstar DBRS maintains its rating-case projection of a constant DSCR of 1.40x for the remaining debt term and expects the trends on the credit ratings to remain Stable for the next 12 months.

CREDIT RATING RATIONALE
The credit rating is anchored by (1) the strength of the 20-year, fixed-price PPA with the high credit quality offtaker¿IESO; (2) the limited operating risk expected with proven technology; and (3) an enhanced project finance structure. The main challenges include (1) the long-term module degradation risk; (2) revenue depending on a variable energy resource and the expected performance ratio; and (3) exposure to long-term warranty providers with relatively weak credit quality.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

RATING DRIVER AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of Rating Driver Factors 
-- In the analysis of the Issuer, the Rating Driver factors listed in the methodology are considered in the order of importance.

(B) Weighting of FRA Factors 
-- In the analysis of the Issuer, the following FRA factor listed in the methodology is considered more important: DSCR (this is the only applicable factor).

(C) Weighting of the Rating Drivers and the FRA 
-- In the analysis of the Issuer, the FRA carries greater weight than the Rating Drivers. 

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Solar Power Projects (April 15, 2024), https://dbrs.morningstar.com/research/431194

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

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

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 info-DBRS@morningstar.com.

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.

Morningstar DBRS 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. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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