DBRS Morningstar Confirms Brilliant Power Corporation’s Ratings at A (high) With Stable Trends

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 of $174.2 million (outstanding balance: $47.2 million) in total 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 (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 ended September 30, 2022. The Stable trends reflect DBRS Morningstar's expectation that the performance will continue to be stable under a cost-of-service revenue contract.

For F2022 (ended March 31, 2022) and the first six months of F2023 (ended September 30, 2022), debt service coverage ratios of 1.93 times (x) and 1.79x continued to be strong for the current ratings. The Company’s strong and stable credit fundamentals are driven by the following factors: (1) Highly predictable cash flow underpinned by the cost-of-service-type power purchase agreement (PPA), which transfers virtually all revenue and operating cost risks to FortisBC Inc. (FortisBC; rated A (low) with a Stable trend by DBRS Morningstar). The capital expenditures are funded by BPC's operating cash flow but recoverable under a return-on-capital payment pursuant to the PPA 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 the Project benefits from the credit quality of the higher-rated BC Hydro through the Backstop PPA, given its 100% ownership in Powerex and the interlocking board and management structures. Furthermore, DBRS Morningstar expects the PPA will likely survive a hypothetical FortisBC default scenario because of the Project’s strategic importance as one of FortisBC’s primary energy-supply sources. As such, DBRS Morningstar determines the ratings are not constrained by the primary offtaker’s rating.

DBRS Morningstar expects the ratings to remain stable for the next 12 months. Although unlikely, 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 substantial and protracted deterioration of BPC’s operating and financial metrics.

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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

The principal methodology applicable to the ratings is the Global Methodology for Rating Project Finance (September 6, 2022; https://www.dbrsmorningstar.com/research/402400). The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

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.

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

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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