Morningstar DBRS Changes Trends on Kingston Solar LP to Positive From Stable; Confirms Credit Ratings at BBB

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; and changed the trend to Positive from Stable. 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, Ontario, 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 Notes (original: $632.97 million; outstanding as of January 31, 2025: $388.54 million) will be fully amortized by the July 31, 2035, maturity date, approximately two months earlier than the expiry of the PPA.

KEY CREDIT RATING CONSIDERATIONS
The confirmation of the credit ratings and the Positive trends reflect ProjectCo's strong operational and financial performance. For the 12-month period ended December 31, 2024, generation reached 102.5% of the one-year P90 rating-case forecasts, as the Project achieved higher availability and insolation levels during the year. Additionally, ProjectCo leased new snow removal equipment, which led to increased generation during the winter months. The Project did not have any material outages and curtailment remained below the cap. The debt service coverage ratio (DSCR) for 2024 was 1.49 times (x), higher than the rating-case forecast of 1.40x. The annual degradation rate of the modules has been materially low, compared to the rating case projection. Flash testing was performed on similarly aged modules of the same make and model, taken from another site. Morningstar DBRS believes that these factors will support the Project in sustaining the performance levels observed in 2024.

In July 2024, ProjectCo entered into a new five-year operating and maintenance (O&M) agreement with Eptcon Limited, with a possibility of one-year extension, replacing SMA Solar Technology AG. The O&M agreement was negotiated at a lower fixed price but is offset by leasing cost of snow removal equipment. Morningstar DBRS notes that there are no material changes in the scope of the O&M agreement.

CREDIT RATING DRIVERS
Morningstar DBRS may consider upgrading ProjectCo's credit ratings if the Project continues to sustain the performance observed in 2024. Although it is unlikely, Morningstar DBRS could consider changing the trend back to Stable should the Project experience frequent forced outages as well as material underperformance (versus the rating case).

FINANCIAL OUTLOOK
Morningstar DBRS maintains its rating-case projection of a constant DSCR of 1.40x for the remaining debt term.

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 factor(s) 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.

CREDIT RATING DRIVERS AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of Credit Rating Driver Factors
In the analysis of the Issuer, the Credit 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 was 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 Credit Rating Drivers.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Project Finance (December 10, 2024), https://dbrs.morningstar.com/research/444393

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186) , which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

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 ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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