Morningstar DBRS Confirms Ratings on Comber Wind Financial Corporation at BBB, Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Comber Wind Financial Corporation's (the Issuer) Issuer Rating and the rating on the $450 million Series 1 Senior Secured Bonds (the Bonds), due November 15, 2030, at BBB with Stable trends. The Issuer is the financing vehicle of the Guarantor, 2016 Comber Wind Limited Partnership (ProjectCo), a special-purpose entity that owns the 82.8-megawatt (MW) Comber East project and the adjacent 82.8-MW Comber West wind project (together, the Project) located in Essex County, Ontario. ProjectCo benefits from fully contracted power prices at attractive rates under two feed-in tariff (FIT) contracts (for each of Comber East and Comber West) with the Independent Electricity System Operator (IESO). As at December 31, 2023, approximately $229.4 million of the Bonds were outstanding.

KEY CREDIT RATING CONSIDERATIONS
The Project commenced commercial operations in November 2011, generating an average of approximately 458.3 gigawatt hours (GWh) annually to YE2023, which is 4.5% more than the annual P90 production forecast of 438.4 GWh and 5.5% more than the rating case forecast of 434.3 GWh. The P50 planned generation level is 500.7 GWh, as per the resource consultant's (Underwriters Laboratories Inc.) wind assessment. The Project has not achieved the P50 generation level because of less favourable wind conditions compared with plan, although it approximated P50 in 2013 and 2014. Revenue for the Project mirrors generation. In 2023, the generation achieved was 398.4 GWh, approximately 8% below the rating-case forecast as a result of unfavourable wind conditions, with an estimated generation loss of 6.5 GWh as a result of outages.

CREDIT RATING DRIVERS
A credit rating upgrade is unlikely in the near term given the variation in the generation levels of the Project. A negative credit rating action could be triggered by frequent forced outages as well as material and sustained underperformance versus the rating case.

FINANCIAL OUTLOOK
For the 12 months ended December 31, 2023, the Project achieved a Morningstar DBRS-adjusted debt service coverage ratio (DSCR) of 1.32 times (x), lower than the rating case projected average and minimum DSCRs of 1.40x and 1.38x, respectively. The lower DSCR was attributed to the loss of revenue because of lower generation resulting from unfavourable wind conditions and outages. The DSCR of 1.32x is supportive of the Issuer's current rating.

The FIT contracts expire 12 months after the maturity of the Bonds. For 20 years until November 2031, the IESO pays ProjectCo the difference between a fixed but partially indexed price, which was $148.51/MW hour (MWh) for 2023, and the market price received in Ontario.

CREDIT RATING RATIONALE
The rating is anchored by the (1) fixed effective energy price, supported by a creditworthy counterparty (IESO); (2) robust operational performance; and (3) experienced sponsor with reputational and strategic stake. The main challenges include (1) wind resource risk, (2) power production forecast and operating risk, and (3) exposure to negative wholesale electricity prices.

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 (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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 was considered more important: DSCR (the only applicable FRA 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 dollars unless otherwise noted.

PXX = exceedance probabilities. A P50-P90-P99 value describes estimated minimum electricity generation with a probability of 50%, 90%, or 99% in any given year (P50, one-year P90, and one-year P99). Unless otherwise specified, all PXX values in this press release are in reference to one-year PXX values, adjusted by Morningstar DBRS, considering degradation and other factors.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Wind Power Projects (April 15, 2024), https://dbrs.morningstar.com/research/431200

Morningstar DBRS credit ratings may use 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 following criteria has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030

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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