DBRS Morningstar Confirms Ratings on Kingston Solar LP at BBB with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Kingston Solar LP’s (ProjectCo or the Issuer) Issuer Rating as well as the rating of its 3.571% Series 1A-2016 Senior Secured Notes and the rating of its 3.571% Series 1B-2016 Senior Secured Notes (together, the Notes) at BBB with Stable trends. ProjectCo is a special-purpose vehicle (SPV) that owns and operates a 100-megawatt (MW) alternating-current ground-mounted solar photovoltaic (PV) generation facility (the Facility or the Project) in the City of Kingston and Loyalist Township, Ontario. The rating confirmations reflect ProjectCo’s relatively stable operations for the past 12 months, excluding planned transformer replacement outages in March 2021 (the Planned Outage). DBRS Morningstar notes that after the replacement in March 2021, the new transformers have been operating without any material issues. The Stable trends reflect DBRS Morningstar’s view that the Issuer will likely perform as expected over the next 12 months. However, DBRS Morningstar notes that generation at the ProjectCo underperforms P50 expectations due to lower-than-expected insolation levels and weather-related incidences.

For the last 12 months ended (LTM) December 31, 2020, and the LTM ended June 30, 2021, generation was 97.8% and 94.0% of the one-year P90 rating-case forecasts, respectively. DBRS Morningstar notes generation for the LTM June 30, 2021, was affected by the Planned Outage. Excluding the impact of the Planned Outage, pro forma generation for the LTM June 30, 2021, would be around 98.6%.

Lower-than-expected generation was largely driven by (1) lower than expected insolation levels; (2) snow built up on panels during winter season; and (3) forced outages during 2020 for the maintenance of the main transformer, which was replaced in March 2021. As a result, DBRS Morningstar adjusted debt service coverage ratios (DSCRs) were 1.37 times (x) and 1.34x for the LTM ended December 31, 2020, and the LTM ended June 30, 2021, respectively. The pro forma DSCR for the LTM ended June 30, 2021, excluding the impact of the Planned Outage, would be around 1.39x.

Since 2017, excluding the impact of one-time events, ProjectCo’s annual generation level has varied between 97.8% and 99% of its P90 expected generation level. As result, DBRS Morningstar-adjusted DSCRs have been between 1.37x to 1.40x. Though these DSCR levels support the current rating, DBRS Morningstar expects ProjectCo to achieve at least P90 generation levels (the rating case) on consistent basis.

DBRS Morningstar maintains its rating-case projection of a constant DSCR of 1.40x for the remaining debt term beyond 2021 and expects the trends on the ratings to remain Stable for the next 12 months. However, frequent forced outages as well as material and sustained underperformance (versus the rating case) could cause a negative rating action in the future. DBRS Morningstar notes that a positive rating action is unlikely in the near to medium term.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
PXX means 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 are in reference to one-year PXX values, adjusted by DBRS Morningstar, considering availability, degradation, and curtailment factors.

The principal methodology is Rating Solar Power Projects (August, 18, 2021; https://www.dbrsmorningstar.com/research/383184/rating-solar-power-projects), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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@dbrsmorningstar.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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577