Fitch Ratings has assigned a first-time long-term Issuer Default Rating (IDR) of 'BBB+' and a short-term IDR of 'F2' to
Fitch has also assigned a 'BBB+' rating to the unsecured notes at Brookfield Renewable Partners ULC, a 'BBB-' rating to the preferred instruments issued by
BEP's ratings and Outlook are supported by a large and diversified portfolio of long-term contracted hydro, solar, wind and storage assets. BEP benefits from its affiliation with
KEY RATING DRIVERS
Large and Diversified Portfolio:
BEP's large operating scale and diversification mitigate adversity affecting a single power market and project. BEP is one of the largest global owners of renewable assets, operating 21 GW renewable generation facilities in 26 power markets and 16 countries. BEP's proportionate long-term average (LTA) generation has become more diversified, shifting from 82% hydro in 2017 to 66% hydro as of 1Q 2021 while increasing wind from 16% to 27% and solar from 2% to 5%, respectively. The single largest non-government third-party customer represents approximately 3% of generation in Q1, 2021. Top 15 investments contributed approximately 46% of total FFO as of
Long-term Contracts Mitigate Weak Price
BEP's generation output is 85% contracted through 2021 and 81% contracted through 2022. The portfolio has a weighted remaining contract life of 14 years, about average. The majority of BEP's power purchase agreements are with investment-grade entities. 40% of revenue has inflation indexation, supporting a healthy margin. The largest single counterparty is BAM (16% of the contracted generation). Merchant generation is exposed to market price risks. Power prices continue to decline in most markets that BEP operate, except for
Favorable Generation Profile:
As of
BAM Sponsorship Beneficial:
BAM has approximately
Approximately 16% of BEP's contracted generation has purchase agreements with BAM, which decreased from 42% in 2017. BAM acted as an intermediary between the project companies, BEP and third party offtakers.
BAM's management fees are assessed based on total capitalization of its investments, causing some cash flow volatility. Due to the exceptional stock performance in the last two years, management fee increased by
Investment Grade Projects:
BEP structures its non-recourse project debt to an investment grade standard. Most projects have a restricted payment test based on a minimum debt service coverage ratio (DSCR) of 1.15-1.5x and projects typically post DSCRs well above the minimum. Non-recourse debt has a weighted-average term of 10 years as of
Balanced Growth:
Management believes that organic growth could contribute to 6-11% FFO growth per unit, including 1-2% inflation escalation, 2-4% margin improvement and 3-5% from development and repowering. BEP has identified 7GW (BEP's share is 3 GW) in its development pipelines over the next five years.
BEP regularly acquires and monetizes assets to maximize value. The company usually finances acquisitions to target an investment grade rating. It has a long-term investment horizon and is willing and has the financial support and operating experience to revamp assets that were poorly managed to drive long-term value.
BEP's rating stability depend on its ability to finance future acquisitions in a credit supportive manner. In the next five years, BEP is expected to deploy
Credit Metrics:
Fitch applies a deconsolidated approach in calculating BEP's credit metrics as BEP finances its operations with primarily non-recourse debt.
DERIVATION SUMMARY
BEP is strongly positioned relative to its peers in terms of scale and diversification. It owns and operates 21 GW of generation assets which is larger than its peers
Fitch views BEP's hydro-intensive asset portfolio favorably due to higher margin, low maintenance, long-life span and dispatch flexibility relative to the solar and on-shore wind assets at NEP,
BEP's affiliation with BAM is beneficial. NEP benefits from its affiliation with NextEra Energy (A-/Stable), which is the largest renewable developer in the
BEP and TERP have modestly shorter remaining contract life of 14 years while NEP,
KEY ASSUMPTIONS
Construction of 2,740 MW (814 MW net to BEP) new projects with expected commissioning in the next three years, funded by capital recycling and asset up-financing;
Embedded inflation adjustment factors in PPAs;
Deploy
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A growth strategy underpinned by acquisitions or addition of assets that bear material volumetric, commodity, counterparty or interest rate risks, or using excessive recourse-debt financing;
Counterparty or asset underperformance resulting in a material shortfall of expected holdco cash flow versus Fitch's projections;
A material increase in concentration of earnings and cashflows from emerging market economies;
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
ISSUER PROFILE
DATE OF RELEVANT COMMITTEE
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on BEP, either due to their nature or the way in which they are being managed by BEP. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONSENTITY/DEBT RATING
Brookfield Renewable Partners ULC
senior unsecured
LT BBB+ New Rating
Brookfield Renewable Partners L.P. LTIDR BBB + New Rating
ST IDR F2 New Rating
preferred
LT BBB- New Rating
junior subordinated
LT BBB- New Rating
senior unsecured
ST F2 New Rating
preferred
LT BBB- New Rating
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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