DBRS Morningstar Confirms Ratings on North Battleford Power L.P. at A (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the Series A Senior Secured Amortizing Bonds (the Bonds) rating at A (low) with Stable trends issued by North Battleford Power L.P. (ProjectCo or the Issuer), a limited partnership wholly owned by Northland Power Inc. ProjectCo is a special-purpose vehicle that owns and operates a 260-megawatt (MW) combined cycle baseload power generation facility that has been in operation since June 5, 2013. The facility benefits from a 20-year baseload power purchase agreement (PPA) with Saskatchewan Power Corporation (rated AA with a Stable trend by DBRS Morningstar) that expires in June 2033. The project is located approximately 150 kilometres northwest of Saskatoon, Saskatchewan, on land owned by the Issuer. The Bonds are fully amortizing and mature six months prior to the PPA expiration date.

ProjectCo’s operating results for 2018 and the last 12 months (LTM) ending June 2019 exceeded projections under the rating case. The DSCR of 1.98 times (x) and 2.00x for 2018 and LTM ending June 30, 2019, respectively, exceeded projections for the period. DBRS Morningstar notes that the PPA was amended in January 2019, adding approximately $2.5 million additional tariff revenue annually because of added reserve capacity of approximately 14 MW. As a result of the incremental revenues from the additional capacity, the minimum projected DSCR increased to 1.77x from 1.73x. Though scheduled annual maintenance in October 2018 led to a lower availability of 92.8% in Q4 2018, overall plant availability of 97.3% in 2018 surpassed projections. For the LTM ending June 30, 2019, plant availability of 97.3% also indicates that ProjectCo is on track to meet or exceed projections in the rating case. DBRS Morningstar notes that the project has exceeded projections every year over the last five years with an average DSCR over the period of approximately 1.92x. If the project continues its strong performance, including cost discipline, DBRS Morningstar may take a positive rating action.

The performance risk is one of the primary risks for rating considerations. Nonetheless, the project’s better-than-expected availability and overall financial performance are encouraging. However, if the project experiences sustained deterioration in its performance and/or increase in operations and maintenance expenses with significant impact on the DSCR, an adverse rating action may be considered by DBRS Morningstar.

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

The principal methodology is Rating Project Finance, which can be found on dbrs.com under Methodologies & Criteria.

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.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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