DBRS Confirms Cory Cogeneration Funding Corporation at A (low)

DBRS has today confirmed the rating of the senior secured Project Bonds of Cory Cogeneration Funding Corporation (CCFC or the Issuer) at A (low), with a Stable trend. The Project Bonds are secured by the Cory Cogeneration Station (Cory or the Project), owned by a 50/50 joint venture between the respective subsidiaries of Saskatchewan Power Corporation (SaskPower; rated AA with a Stable trend, which is a flow-through of the rating of the Province of Saskatchewan) and ATCO Ltd. (ATCO; rated A (low) with a Stable trend). The rating continues to be supported by a 25-year power purchase agreement (PPA) with SaskPower, which is scheduled to expire after the Project Bonds mature.

SaskPower is obligated, under the PPA, to make capacity payments based on the availability of Cory, regardless of actual production. The PPA also provides for a tolling arrangement under which SaskPower, if dispatching the Project, shall supply and pay for the natural gas required to produce electricity. In addition, the PPA includes change-in-law provisions that are designed to protect CCFC from additional costs that may be incurred with respect to changes in taxation or regulations.

CCFC’s rating remains constrained by operating risk as the Project receives PPA revenues based on plant availability. However, this risk is somewhat mitigated by a mature and proven turbine technology with predictable operating characteristics; a maintenance and servicing agreement with a reputable equipment supplier, General Electric Company (GE); the owners’ experience in operating similar facilities; and the Project’s track record of consistent operation.

Coverage could be under pressure when the facility has outages, as was experienced in 2010. Plant availability was lower in 2010 mainly due to the combination of a 12-day forced outage and a planned 26-day outage in the first half of year. The planned outage was a major turbine overhaul required every six to seven years. For the 12 months ended June 30, 2011, operating performance and debt service coverage ratio (DSCR) recovered somewhat and remained acceptable for the current rating category.

A debt service reserve equal to two quarters of debt payment is posted when the DSCR falls to 1.4 times or below, providing downside protection. That requirement is currently met by the owners’ posting of demand promissory notes to the collateral agent. The rating of the Project Bonds will continue to be supported by the integrity of the PPA and the creditworthiness of SaskPower.

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

The applicable methodology is Rating Project Finance, which can be found on our website under Methodologies.