Morningstar DBRS Confirms Northland Power Solar Finance One L.P. at A (low) With Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and the Senior Secured Amortizing Bonds, Series A (the Bonds) credit rating of Northland Power Solar Finance One L.P. (ProjectCo or the Issuer) at A (low) with Stable trends. The Bonds, maturing on June 30, 2032, currently have an outstanding balance of approximately $122 million. The rating confirmations reflect ProjectCo's continuing strong performance over the past 12 months ended on December 31, 2024.

ProjectCo's debt obligations are guaranteed on a joint-and-several basis by the six project limited partnerships (Project LPs). The Project LPs are six operating solar photovoltaic (PV) power-generating facilities (together, the Facilities or the Project) with an aggregate capacity of 60 megawatts (MW) located across Ontario. The Project LPs have been selling power to the Independent Electricity System Operator (the IESO) under six virtually identical 20-year fixed-price feed-in-tariff (FIT) contracts since 2013.

KEY CREDIT RATING CONSIDERATIONS
The A (low) credit ratings are underpinned by (1) the contracted stable cash flow under the long-term fixed-price FIT contracts with the IESO, a high-credit-quality system operator; (2) the consistently strong operating and financial results; (3) an enhanced project finance structure; and (4) Northland Power Inc. as an experienced owner-operator. The credit ratings are constrained by (1) the long-term solar panel degradation risk and (2) inherent cash flow volatility because of variability of solar insolation levels and operating risk.

CREDIT RATING DRIVERS
Morningstar DBRS expects the credit ratings to remain stable for the next 12 months; however, a material and sustained underperformance (versus the credit rating case) with debt service coverage ratio (DSCR) below 1.50 times (x) for several consecutive years, albeit unlikely, could trigger a negative credit rating action. A sustained stronger-than-P50 production level resulting in DSCR at or above 1.75x for several consecutive years could trigger a positive credit rating action.

FINANCIAL OUTLOOK
Morningstar DBRS continues to project a minimum DSCR of 1.53x for the remaining period of the Bonds, based on the forecast P90 production level. Morningstar DBRS, however, recognizes that the Project has been consistently generating energy at or above the P50 level, resulting in higher-than-expected DSCR levels since the Project's inception. Morningstar DBRS may consider revising the forecast if this trend continues.

CREDIT RATING RATIONALE
Morningstar DBRS assigned and confirmed the credit ratings by considering both the rating driver and financial assessment factors.

The Project has had more than 11 years of consistently strong performances. In 2024, the overall production was 15% and 7% higher than the P90 (rating case) and P50 forecasts, respectively. The higher-than-expected energy production was driven by (1) a high availability of 99.7% (versus the expected 99.0%) and lower-than-expected cumulative panel degradation, (2) strong solar insolation levels experienced in the year, and (3) better-than-expected winter production because of less-than-normal snow accumulation and positive effect of snow removal equipment installed since 2019. The DSCR of 1.81x in 2024 was significantly higher than the expected 1.53x in the P90 rating case. The better-than-expected DSCR was driven by strong production/revenue (versus the credit rating case) and lower-than-expected operating cost (including the capital expenditure (capex)). The capex of $900,000 budgeted in 2024 for Supervisory Control and Data Acquisition (SCADA) upgrade has been pushed into 2025.

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 Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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, DSCR (the only applicable FRA), listed in the methodology is considered more important.

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

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 methodologies:
-- Global Methodology for Rating Project Finance (December 10, 2024) https://dbrs.morningstar.com/research/444393
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025) https://dbrs.morningstar.com/research/447186

The following methodology has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

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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