Fitch Ratings has revised
RATING RATIONALE
Topaz's affirmed 'BB+' rating and revised Outlook to Positive from Stable reflect the rating action taken on
The project's credit profile is otherwise strong, supported by its fully contracted revenue structure, low operating risk, standard project finance debt structure, and a history of strong financial performance that Fitch expects to continue. Topaz displays a strong operational performance and healthy financial metrics, with modest leverage and strengthening debt service coverage ratios (DSCR). Metrics are consistent with the 'A' category, but the project rating is constrained by the off-taker.
KEY RATING DRIVERS
Operation Risk - Midrange
Proven Technology and Experienced Operator: Thin-film photovoltaic (PV) technology has a long operating history, which mitigates plant performance risks. Fitch's financial analysis incorporates operating cost increases to mitigate unforeseen events, including the risk of contractor replacement.
In early 2024 the sponsor,
Revenue Risk - Volume - Stronger
Solid Solar Resource: Revenue Risk - Actual generation has outperformed Fitch Base Case for the each of the last seven years with an average annual overperformance of 7%. Fitch has maintained the production haircut at 2% given that this is a single-site project, in line with peer projects.
Total generation output in Fitch's rating case is based on a one-year P90 estimate of electric generation to mitigate the potential for lower-than-expected solar resources. The PPA provides reimbursement for curtailment directed by the utility. The project can meet debt obligations under a one-year P99 generation scenario.
Revenue Risk - Price - Stronger
Stable Contracted Revenues: The fixed-price, 25-year PPA with below investment grade
Debt Structure - 1 - Stronger
Conventional Debt Structure: The senior-ranking, fully amortizing, fixed-rate debt benefits from a six-month debt service reserve backed by a letter of credit and strong 1.20x forward and backward-looking debt service coverage equity distribution test.
Financial Profile
Under Fitch's base case DSCRs average 2.21x with a minimum of 1.92x for the period 2023-2039. Fitch's rating case includes stresses that increase O&M expenses and reduce energy output, resulting in an average DSCR of 1.96x with a minimum of 1.70x. In both scenarios, annual DSCRs generally increase over time, reflecting a profile supportive of the rating.
PEER GROUP
Fitch privately rates several renewable project financings that demonstrate rating case DSCRs consistent with a strong investment grade profile but are constrained to sub-investment grade by the credit quality of
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A decline in the credit quality of PPA off-taker,
A Fitch rating case DSCR profile below around 1.15x.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An improvement in the credit quality of PPA off-taker,
CREDIT UPDATE
The ratings affirmation and Positive Outlook revision for
For more information on
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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