Roughly $700 million of debt securities excellent
New York, October 07, 2022 — Moody’s Traders Service (“Moody’s”) as we speak modified the outlook of Sample Power Operations LP (“Sample Operations”) to constructive from secure. Concurrently, Moody’s affirmed Sample Operations’ Ba3 company household score (CFR), Ba3 senior unsecured score and Ba3-PD Chance of Default score. Sample Operations’ speculative grade liquidity score is unchanged at SGL-2. See the whole listing of score actions beneath.
RATINGS RATIONALE
“The change in Sample Operations’ outlook to constructive displays the anticipated enchancment in monetary metrics pushed by administration’s latest credit score supportive initiatives” stated Natividad Martel, Vice President – Senior Analyst. “Particularly, we count on that the ratio of debt to EBITDA will vary between 7.0-8.0x at year-end 2022 and proceed to enhance as the corporate pursues a prudent and conservatively financed development technique” stated Natividad Martel, Vice President – Senior Analyst.
For instance, Sample Operations’ holding firm debt didn’t improve to fund the latest addition of the massive 1,050 MW Western Spirit windfarm to the portfolio earlier this yr. This asset “drop down” was carried out by an in-kind contribution with the sponsors additionally making a money fairness contribution of $233 million. As well as, the complete compensation of $199 million excellent beneath the corporate’s financial institution credit score facility at year-end 2021 additional underpins our expectation of an enchancment in monetary metrics at year-end 2022. These initiatives will assist to reverse Sample Operations’ weak monetary efficiency in 2021 which was negatively affected by the February 2021 extreme Texas winter storm. The corporate additionally deleveraged slower than we had anticipated final yr following credit score facility borrowings and venture debt incurred on the Spring Valley and Misplaced Creek tasks to fund the compensation of its $260 million 364-day term-loan.
Sample Operations’ Ba3 score elements within the long-term contracts on the overwhelming majority of its belongings with hedging preparations restricted to its 4 wind farms in Texas. The corporate reviews that its belongings’ remaining common contractual life is roughly 12 years. The score additionally considers the portfolio’s good credit score high quality counterparties and operations which are diversified throughout totally different areas of each the US and Canada. This geographic range helps to mitigate the publicity of its money circulation to unstable wind sources given its portfolio’s excessive focus in wind power. Sample Operations stays uncovered to some development danger by its sister firm, Sample Power Group Holdings 2 LP (Sample Growth). This arises largely by the intertwined administration of the circulation of funds between the entire Sample subsidiaries by the issuer’s mum or dad firm, Sample Power Group LP (PEG LP), with the group’s liquidity supported with borrowings beneath the credit score services entered by Sample Operations’ finance subsidiaries.
Liquidity evaluation
Sample Operations’ SGL-2 speculative grade liquidity score displays the corporate’s good liquidity. In November 2021, Sample US Finance Firm LLC and Sample Canada Finance Firm ULC (co-borrowers and co-guarantors) entered into a brand new $150 million letter of credit score (LC) facility (excellent LC balances $71 million and $45 million on the finish of June 2022 and December 2021). This facility, in addition to their $375 million revolving financial institution credit score facility, are scheduled to run out in August 2026. As of the top of June 2022, the provision beneath the revolving credit score facility amounted to $346 million with excellent LCs aggregating $29 million. As talked about earlier, no borrowings had been excellent on the finish of June and March 2022 in comparison with the excellent borrowings of $199 million at year-end 2021.
The SGL-2 additionally anticipates that Sample US Finance Firm LLC and Sample Canada Finance Firm ULC will stay comfortably in compliance with the monetary covenants embedded within the credit score facility. These covenants require that the subsidiaries keep a primary lien leverage ratio (the ratio of borrower first lien debt to borrower money circulation) that doesn’t exceed 3.50:1.00 and an curiosity protection ratio (the ratio of borrower money circulation to borrower curiosity expense) that isn’t lower than 1.75:1.00. Nonetheless, within the absence of first lien debt within the issuer’s capital construction solely the curiosity protection ratio covenant applies. The ratio was 5.78x on the finish of June 2022.
Borrowings beneath the revolving credit score facility are topic to materials adversarial change illustration clauses, a credit score and liquidity damaging. Borrowings beneath the ability are additionally used to help liquidity wants for the tasks beneath growth by Sample Operations’ sister firm, Sample Growth. For instance, final yr, Sample Canada Finance Firm ULC issued a Revolving Intercompany Demand promissory word to the sister firm that’s creating the Lanfine Wind venture, the subsequent asset anticipated to be dropped be right down to Sample Operations upon its completion anticipated by year-end or early 2023.
The SGL-2 displays Sample Operations’ comparatively modest capital necessities and our expectation of a continuation of the corporate’s credit score supportive technique to fund development, which is able to largely encompass in-kind contributions because it was the case for Western Spirit earlier this yr. We anticipate that new tasks might be contributed with their ultimate capital construction already in place that may embody a mixture of tax fairness partnerships and again levered venture debt.
At the moment, Sample Operations has 9 unencumbered belongings, nevertheless, they’ve entered into tax fairness partnerships on these belongings. Typically, the funds beneath these tax fairness partnerships scale back the amount of money that’s distributable to Sample Operations besides beneath the Broadview and Grady pay-go tax fairness preparations.
Affirmations:
..Issuer: Sample Power Operations LP
…. Company Household Score, Affirmed Ba3
…. Chance of Default Score, Affirmed Ba3-PD
….Backed Senior Unsecured Common Bond/Debenture, Affirmed Ba3 (LGD4)
Outlook Actions:
..Issuer: Sample Power Operations LP
….Outlook, Modified To Optimistic From Steady
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Elements that might result in an Improve
Sample Operations’ rankings may very well be upgraded if, as we count on, its consolidated ratio of debt to EBITDA stays beneath 7.5x or the ratio of CFO pre- modifications in working capital (CFO pre-W/C) to debt stays above 9%, on a sustainable foundation. Each ratios are calculated on a run-rate foundation contemplating the full-year monetary efficiency of any new belongings, using proportional consolidation of unconsolidated tasks, excluding web funds beneath the tax fairness partnerships, and together with any mum or dad debt excellent at Sample Power Group LP. We perceive the mum or dad firm stays unencumbered.
Elements that might result in a Downgrade
A stabilization of the outlook or a downgrade of the CFR is probably going if we count on a deterioration in Sample Operations’ monetary efficiency such that its consolidated ratio of debt to EBITDA exceeds 8.5x or CFO pre-W/C to debt falls beneath 5%, on a sustained foundation. Each ratios are calculated on a run-rate foundation contemplating the full-year monetary efficiency of any new belongings, using proportional consolidation of unconsolidated tasks, excluding web funds beneath the tax fairness partnerships and together with any unencumbered mum or dad debt excellent at Sample Power Group LP.
Sample Operations’ outlook is also stabilized and the rankings may very well be lowered if vital publicity to development danger materializes at PEG LP and/or at Sample Operations’ sister firms. The Ba3 score on the senior unsecured notes may very well be downgraded upon modifications within the seniority or composition of the group’s capital construction together with, for instance, if incremental senior secured debt within the type of time period loans is issued and adversely impacts the restoration prospects of the senior unsecured notes.
The principal methodology utilized in these rankings was Unregulated Utilities and Unregulated Energy Corporations printed in Might 2017 and accessible at https://ratings.moodys.com/api/rmc-documents/75129. Alternatively, please see the Score Methodologies web page on https://ratings.moodys.com for a duplicate of this technique.
Sample Power Operations LP (“Sample Operations”) is a growth-oriented renewable power firm that owns and operates a fleet of wind farms and transmission belongings. Its portfolio of renewable belongings at the moment encompass 25 belongings with an put in capability that aggregates round 5.3 GW, or almost 3.4 GW on an ownership-adjusted foundation. Sample Power Group LP (mum or dad or PEG LP) is the issuer’s direct mum or dad firm and likewise owns Sample Power Group Holdings 2 LP (Sample Growth) and Inexperienced Energy Funding Company (GIP). Each sister firms have a big pipeline of recent renewable tasks in North America and Japan. GIP not directly owns the 5 Japanese belongings beforehand owned by Sample US Finance Firm.
REGULATORY DISCLOSURES
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Natividad Martel
Vice President – Senior Analyst
Venture & Infra Finance Group
Moody’s Traders Service, Inc.
250 Greenwich Avenue
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Shopper Service: 1 212 553 1653
Michael G. Haggarty
Affiliate Managing Director
Venture & Infra Finance Group
JOURNALISTS: 1 212 553 0376
Shopper Service: 1 212 553 1653
Releasing Workplace:
Moody’s Traders Service, Inc.
250 Greenwich Avenue
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Shopper Service: 1 212 553 1653