DBRS Morningstar Confirms Brilliant Power Corporation at A (high), Stable

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the Series A Bonds, Series B Bonds, and Series C Bonds (collectively, the Project Bonds) ratings of Brilliant Power Corporation (BPC or the Company) at A (high) with Stable trends. All three tranches of the Project Bonds will fully amortize by the maturity date of May 31, 2026. BPC is a nontaxable single-purpose Crown corporation indirectly owned by the Province of British Columbia (rated AA (high) with a Stable trend by DBRS Morningstar). BPC owns and operates a 149-megawatt hydroelectric generation facility and the Brilliant Terminal Station transmission assets (together, the Project) in the Kootenay-Columbia region of British Columbia.

The rating confirmations reflect the Company’s consistently strong operating and financial performances over the 18-month review period to September 30, 2021. The debt service coverage ratios of 1.92 times (x) for F2021 (ended March 31, 2021) and 1.97x for the first six months of F2022 (ended September 30, 2021) continue to be strong for the current ratings. The Company’s stable and strong credit fundamentals are driven by the following factors: (1) The Company has highly predictable cash flow from the cost-of-service-type power purchase agreement (PPA), which transfers virtually all revenue risk and operating cost to FortisBC Inc. (FortisBC; rated A (low) with a Stable trend by DBRS Morningstar) until debt maturity. The capital expenditures are funded by BPC and recovered under a return on capital payment over 30 years. (2) Hydrology risk is contractually transferred to the British Columbia Hydro and Power Authority (BC Hydro; rated AA (high) with a Stable trend by DBRS Morningstar) under the Canal Plant Agreement to 2035 (beyond debt maturity). (3) There is additional support from a backstop PPA (the Backstop PPA) with Powerex Corp. (Powerex), a wholly owned subsidiary of BC Hydro. A project’s rating is usually constrained by the primary offtaker’s rating—in this case, FortisBC’s A (low) rating. However, DBRS Morningstar believes that the Project benefits from the credit quality of the higher-rated BC Hydro through the Backstop PPA given its 100% ownership in Powerex and interlocking board structures. Furthermore, DBRS Morningstar expects that the PPA would likely survive a hypothetical FortisBC default scenario given the Project’s strategic importance as one of FortisBC’s primary energy-supply sources. As such, DBRS Morningstar determines that the ratings are not constrained by the primary offtaker’s rating.

DBRS Morningstar expects the ratings to remain stable for the next 12 months. An upgrade is unlikely given that the ratings have already reached the rating cap for single-asset power projects according to DBRS Morningstar’s “Rating Project Finance” methodology. A downgrade could be driven by (1) a weakening of BC Hydro’s credit support as a result of decoupling Powerex from its corporate structure or (2) a material and protracted deterioration of BPC’s operating and financial metrics.

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:
The principal methodology is Rating Project Finance (August, 18, 2021; https://www.dbrsmorningstar.com/research/383185), 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.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

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

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