DBRS Morningstar Confirms Ratings on Arrow Lakes Power Corporation at A (high), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating on Arrow Lakes Power Corporation (ALPC or the Company) and the rating on its Series B Bonds (the Bonds) at A (high) with Stable trends. The 5.516% $350 million Bonds, of which $306 million are outstanding, will be fully amortized by the maturity date of April 5, 2041, four years before the expiry of the Electricity Purchase Agreement (EPA). ALPC is a single-purpose entity that owns and operates a 185-megawatt hydroelectric power station and associated transmission line (the Project). The Company is a tax-exempt Crown corporation indirectly owned by the Province of British Columbia (rated AA (high) with a Stable trend by DBRS Morningstar). The rating confirmations reflect the Project’s highly predictable cash flow and debt service coverage ratio (DSCR), underpinned by (1) the Keenleyside Entitlement Agreement (the Entitlement Agreement) and the EPA, essentially eliminating the hydrology and price risks; (2) reliable and low-cost characteristics of the underlying hydro assets; and (3) a projected minimum DSCR of 1.84 times (x) from 2022 until Bond maturity, with an average DSCR of 2.09x. The ratings also consider the strong credit profile of British Columbia Hydro and Power Authority (rated AA (high) with a Stable trend by DBRS Morningstar), which is the counterparty for the Entitlement Agreement and the EPA.

Project cash flow and debt service were essentially consistent over the fiscal year ended March 31, 2021, compared with 2020 and 2019. The Project realized a DSCR of 2.23x for the year ended March 31, 2021, which is highly supportive of the current rating category. For the 12 months ended December 31, 2021, the DSCR remained strong at 2.19x as the facility continued to maintain low outage rates. DBRS Morningstar expects the current A (high) rating to remain stable in the absence of any major operating failure causing unexpected high outages and/or higher maintenance capital expenditure.

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:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Project Finance (August 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.

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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