Morningstar DBRS Confirms Grand Renewable Solar LP at BBB With Stable Trends

DBRS, Inc. (Morningstar DBRS) confirmed Grand Renewable Solar LP's (ProjectCo) Issuer Rating and the ratings on the 3.926% Series 1A-2016 Senior Secured Notes and 3.926% Series 1B-2016 Senior Secured Notes (collectively, the Notes) at BBB. All trends are Stable. The pari passu Notes, with an outstanding balance of approximately $392.4 million, will fully amortize by the January 31, 2035 maturity date. The rating confirmations reflect ProjectCo's relatively stable operating and financial performance over the review period.

ProjectCo, a special-purpose vehicle, owns and operates a 100-megawatt alternating-current ground-mounted solar photovoltaic (PV) generation facility; it also owns a 50% interest in the associated 20-kilometer transmission facilities connecting the PV facility to Hydro One Networks Inc.'s electricity grid (collectively, the Project). ProjectCo sells all generated electricity to the Independent Electricity System Operator (IESO) under a 20-year fixed-price power purchase agreement until March 30, 2035. The off-taker, IESO, has a strong credit quality that does not constrain ProjectCo's ratings.

KEY CREDIT RATING CONSIDERATIONS
The Project has more than nine years of stable operation history. For the 12-month periods ended January 31, 2024 and April 30, 2024, the operations performed well; the debt service coverage ratios were 1.45 times (x) and 1.44x, respectively, comfortably above the 1.40x in the rating case. The Project's 12-month actual generation represented 102.5% of the P90 level (the rating case) and 96.7% of the P50 level for full-year 2023.

The good financial performance was driven by adequate insolation and a high availability rate, which has been greater than 99%. Annual site testing has shown no material degradation in the panels' performance.

A defect with some of the Project's modules was discovered in 2022. Approximately 11% of the modules may have a problem with the back sheet. Performance has not yet been affected, but could eventually if the modules are not repaired or replaced. Canadian Solar Inc. (CSI), the module manufacturer, is responsible under the warranty and is working with ProjectCo to reach a resolution, which is expected before the end of 2024. Morningstar DBRS expects this problem to be remedied at minimal cost to ProjectCo and for the Project's performance to remain unaffected.

CREDIT RATING DRIVERS
Morningstar DBRS expects the trends on the ratings to remain Stable for the next 12 months. A material and sustained underperformance of ProjectCo compared with the rating case could cause a negative rating action, whereas a material and consistent outperformance could cause a positive rating action.

FINANCIAL OUTLOOK
The 2024 operating budget is largely consistent with the original rating-case assumptions. Gross revenue in the rating case is based on the independent engineer's one-year P90 forecast with 99% availability. Net revenue deducts annual degradation of 0.75% and annual average curtailment, consistent with the IESO PPA amendment, although more conservative than the warranted 0.70%. Morningstar DBRS expects a constant DSCR of 1.40x in the P90 rating case.

CREDIT RATING RATIONALE
The ratings are bolstered by (1) a 20-year fixed-price power purchase agreement with the IESO; (2) limited operating risk with components provided by and serviced by reputable companies; and (3) a credit-supportive project financing structure. The main challenges include (1) module degradation risk; (2) the relatively weak credit quality of the Project's long-term warranty providers; and (3) revenue dependence on a variable energy resource.

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

RATING DRIVER FACTORS AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of Rating Driver Factors
In the analysis of Grand Renewable Solar LP, the Rating Driver factors listed in the methodology are considered in order of importance.

(B) Weighting of FRA Factors
In the analysis of Grand Renewable Solar LP, the following FRA factor was considered more important: minimum DSCR.

(C) Weighting of the Rating Driver factors and the FRA
In the analysis of Grand Renewable Solar LP, the FRA carries greater weight than the Rating Driver factors.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Solar Power Projects (15 April 2024)
https://dbrs.morningstar.com/research/431194

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (15 April 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/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings

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 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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