PrefBlog

Standard & Poor’s has announced:

• •We are revising our outlook on Brookfield Renewable Partners L.P. (BEP) to negative from stable, reflecting limited cushion in the credit metrics should the recovery we are expecting in hydrology and generation across BEP’s footprint fail to materialize.
• •We believe droughts, El Nino, and low hydrology have affected BEP’s portfolio over the past couple of years, resulting in generation below long-term averages (LTA) that is offsetting the portfolio’s geographic diversity.
• •We are affirming our ratings on BEP, including our ‘BBB+’ long-term corporate credit rating.

…
The outlook revision reflects what we view as limited cushion in the credit metrics should the recovery we are expecting to see in hydrology and generation across BEP’s footprint fail to materialize. Metrics have been lower in the past two years because of lower distributions received from owned assets. During this period, generation has been lower than long-term averages mainly due to low hydrology in North America and Brazil, and drought in Colombia due to the El Nino effect in first-half 2016. Even though minimal, the appreciation of the U.S. dollar during this time has also not helped.

The negative outlook reflects S&P Global Ratings’ view that there is limited cushion in the credit metrics should the recovery expected in hydrology and generation across BEP’s footprint fail to materialize. We still expect BEP to 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 base-case FFO-to-debt in the 20%-25% range and debt-to-EBITDA of 3.5x-4.5x during our two-year outlook period. We also expect BEP to remain moderately strategic to parent BAM as per our group rating assessment.

We could lower the rating if FFO-to-debt consistently falls below 23% or if the QD score deteriorates during the outlook period. This could result distributions lower than currently forecast as a result of generation below LTA or from acquisitions or capital expenditures financed with substantially higher levels of holding-company debt or acquisition of higher risk merchant assets or a material change in the contractual profile of the operating assets. Given the group support, a negative rating action on the parent would flow through to BEP. In addition, a revision in our assessment of the group status to nonstrategic could result in a downgrade, though this appears less likely.

We could revise the outlook back to stable if the company maintains forward-looking credit metrics at the higher end of the significant. This could result from lower resource variability, generation in line with LTA, increased cash flow, significant deleveraging, and acquisitions financed with lower levels of holding-company debt, all resulting in FFO-to-debt of 25%-30% and debt-to-EBITDA of 3.0x-3.5x.

Affected issues are:

BRF.PR.A, BRF.PR.B, BRF.PR.C, BRF.PR.E and BRF.PR.F (These are from Brookfield Renewable Power Preferred Equity Inc., a wholly owned subsidiary of BEP, and pay eligible dividends)

BEP.PR.E, BEP.PR.G, BEP.PR.I and BEP.PR.K (These are from Brookfield Renewable Partners L.P. itself, and pay distributions comprised of return of capital and ordinary income)

It is not too long since S&P upgraded BEP & BRF to P-2(low) (which was affirmed).

This entry was posted on Friday, September 29th, 2017 at 10:45 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.