DBRS Confirms Brookfield Renewable Power Fund at STA-2 (high)

DBRS has today confirmed the stability rating of Brookfield Renewable Power Fund (BRPF or the Fund), formerly known as Great Lakes Hydro Income Fund, at STA-2 (high). The confirmation reflects the long-term value of the Fund’s renewable power generating assets, with strong power sale contracts, solid performance and predictable cash flow. The significant acquisition and contract amendments in Q3 2009 (the Transaction; please see DBRS’s July 6, 2009, press release) improved BRPF’s contract profile and expanded the size, scale and diversification of the asset portfolio. The Fund acquired from Brookfield Renewable Power Inc. (BRP; rated BBB (high), Stable) both assets and contractual benefits consisting primarily of:

(1) Fifteen hydroelectric generation facilities (387 MW) currently in operation. These acquired assets consist primarily of the 12-station Great Lakes Power Limited (GLPL), a 349 MW complex located in Northern Ontario.

(2) An increase in the price of power (to $68/MWh) that the Fund sells from assets held through its wholly-owned subsidiaries, Lièvre Power Financing Corporation (Lièvre; rated A (low)) and Mississagi Power Trust (rated A (low)), to BRP.

BRP also guarantees the price BRPF will receive on all of GLPL’s output and sales at an initial fixed price of $68/MWh. All three of these contracts are long term, with the Lièvre contract ending in 2019, the Mississagi contract ending in 2022 and the GLPL contract running initially until 2029.

(3) A 50 MW wind power generation facility currently in development, which, upon completion, will sell all generating output to the Ontario Power Authority (rated A (high) with a Stable trend).

The Transaction was valued at approximately $945 million, which was funded through the issuance of $760 million of Fund units, as well as a $200 million senior unsecured note issued to BRP.

The predominant type of asset remains hydro-electric facilities with long operating histories, while wind power accounts for less than 15% total capacity and generation even after the anticipated completion of the Gosfield Wind Project. Modest addition of wind power generation brings some technological diversification as well as provides the benefit of accelerated depreciation, which becomes meaningful for the distribution and/or dividend payments after the Fund’s conversion to a corporation. Although more of the Fund’s long-term contracts are with its majority unit-holder (BRP) as a result of the Transaction in August 2009, shortly thereafter, BRP entered into sale contracts with the OPA covering most of BRP’s off-taking volumes in Ontario, strengthening its counterparty position.

The Fund has had reasonable performance in the past few years, despite fluctuations in hydrology and production levels. The more recent quarters have seen better-than-average water flow, which, together with distributable cash flow from newly acquired assets, improved the payout ratio to below the target range of 80%. Hydrology risk is reasonably mitigated by various reserves facilities. This, together with the enhanced contract protection, asset diversification, and liquidity resulting from the transactions in 2009 and substantial capital investments made in the past few years, is expected to sufficiently soften the impact on cash flow of hydrology and production variability and support the stability of the current distribution level.

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

The applicable methodology is Income Funds Rating Methodology which can be found on our web site under Methodologies.

This is a Corporate rating.