DBRS Morningstar Confirms Ratings on Bruce Power L.P. at BBB with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Notes rating of Bruce Power L.P. (BPLP or the Partnership) at BBB with Stable trends. The rating confirmations reflect BPLP’s stable business risk profile underpinned by the inflation-indexed fixed-price Implementation Agreement and its robust credit metrics. The Stable trends reflect DBRS Morningstar's view that no material changes to BPLP’s credit fundamentals are expected for the next 12 months.

DBRS Morningstar notes that the Unit 6 Major Component Replacement Project (MCR) is on time and on budget. The refueling and the final inspections of Unit 6 are currently underway with the unit expected to return to service in Q4 2023. BPLP has removed Unit 3 from service to begin the preparatory work for MCR construction, with Unit 3 expected to return to service in 2026. DBRS Morningstar expects revenue and EBITDA for 2023 to be slightly higher than those achieved in 2022, driven primarily by higher contract prices under the Implementation Agreement. DBRS Morningstar expects the increased capital expenditures tied to the Unit 6 and Unit 3 MCRs to be primarily funded by mandatory capital calls to owners.

EBITDA was $1.7 billion for 2022 and $1.9 billion for the last 12 months ended March 31, 2023, which met management's initial guidance. The achieved EBITDA was robust relative to the historical average over the past five years. In addition, there has been no material increase in the total debt amount for the review period. As a result, BPLP’s key credit metrics continue to be at or above the high end of the BBB rating category for independent power producers rated by DBRS Morningstar. The volatility of macroeconomic factors is expected to have a limited impact on BPLP's financial performance given the revenue stability underpinned by the inflation-indexed fixed-price Implementation Agreement. DBRS Morningstar expects the key credit metrics to remain at or above the high end of the BBB rating category.

DBRS Morningstar expects the ratings to remain stable for the next 12 months. A rating upgrade in the immediate future is unlikely given that the complex life-extension projects are now in full swing but DBRS Morningstar will revisit the rating following the successful completion of the Unit 6 MCR. On the other hand, a rating downgrade would likely be triggered by (1) a significant and sustained deterioration of credit metrics and/or (2) material cost overruns and delays associated with the life-extension projects.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
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.

DBRS Morningstar applied the following principal methodology: Global Methodology for Rating Companies in the Independent Power Producer Industry (May 9, 2023) https://www.dbrsmorningstar.com/research/413646.

The credit 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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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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