BEP & BRF Outlook Improves to Stable, says S&P

Standard & Poor’s has announced:

  • We are revising our outlook on Brookfield Renewable Partners L.P. (BREP) to stable from negative and are affirming our ‘BBB+’ issuer credit rating.
  • At the same time, we are affirming our ‘BBB+’ issue-level rating on the company’s unsecured notes and our ‘A-2’ short-term rating. Our ‘BBB-/P-2(Low)’ preferred rating remains unchanged.
  • The stable outlook reflects our view that the company’s business profile is less susceptible to resource risk because its hydrology is reverting back to historical levels. The decline in its financial measures, reflected in its year-end 2017 adjusted funds from operations (FFO) to debt of about 14%, has also reversed and its FFO-to-debt ratio improved to about 19% as of the quarter ended March 2019. We now expect BREP to maintain adjusted FFO to debt in the 20%-25% range over the next couple of years.

NEW YORK (S&P Global Ratings) July 8, 2019—S&P Global Ratings today took the rating actions above. Our affirmation reflects the continuing strength of BREP’s hydro-centric portfolio, which features assets with longer lives and relatively lower required capital spending than other generation asset types. We revised our outlook to stable because of the receding hydrology risk across the company’s portfolio, which had previously weighed on its financial measures, and its corporate-level debt prepayment. In the first quarter of 2019, BREP repaid almost all of its corporate credit facility using the proceeds from its issuance of preferred units and part of the proceeds from its sale of a 25% interest in one of its Canadian hydroelectric portfolios.

BREP’s year-end 2018 financial results demonstrate the successful execution of its long-term strategy to strengthen its liquidity and improve its credit metrics through both organic and inorganic growth. Even as the hydrology for its Brazilian assets continues to trend lower than we expected, we see the portfolio’s hydrology risk as moderating based on BREP’s generation levels for the most recent two years. The affirmation also incorporates the addition of the Terraform Power and Terraform Global wind and solar assets that contributed to the improvement in the company’s financial metrics in 2018.

The stable outlook on BREP reflects our expectation that the company will maintain a well-diversified portfolio of generation assets, operate under long-term contracts with investment-grade counterparties, and generate fairly predictable cash flows to support its holding-company debt obligations. We expect its adjusted FFO-to-debt ratio to improve to the 20%-25% range and anticipate that its adjusted debt to EBITDA will decline to 4.0x over the next 12 months. We also expect BREP to remain moderately strategic to its parent BAM per our group rating assessment.

We could lower our rating on BREP if its adjusted FFO-to-debt ratio consistently remains below 20% or if the company acquires assets that are higher risk that its existing portfolio, leading to a deterioration in the quality of the distributions from its portfolio. This could occur if it finances its acquisitions with substantially higher levels of holding-company debt or acquires higher-risk merchant assets or if there is a material change in the contractual profile of its operating assets.

While we view an upgrade as unlikely, we could raise our ratings on BREP if we revise our view of its stand-alone credit profile (SACP) to ‘a-‘. This is because our ratings on BREP already benefit from its perceived parental support but are capped one notch below our ‘A-‘ rating on BAM.

Affected issues are: (issued directly by Brookfield Renewable Partners L.P.) BEP.PR.E, BEP.PR.G, BEP.PR.I, BEP.PR.K, BEP.PR.M & BEP.PR.O

(issued by Brookfield Renewable Power Pref Eqty Inc, its subsidiary, and guaranteed by the parent) BRF.PR.A, BRF.PR.B, BRF.PR.C, BRF.PR.E, BRF.PR.F

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