Fitch Ratings has revised Topaz Solar Farms, LLC's (Topaz) $1.100 billion ($679 million outstanding) senior secured notes due September 2039 Rating Outlook to Positive from Stable and affirmed the rating at 'BB+'.

RATING RATIONALE

Topaz's affirmed 'BB+' rating and revised Outlook to Positive from Stable reflect the rating action taken on Pacific Gas and Electric (PG&E). Topaz's rating continues to be constrained by the credit quality of PG&E, the project's sole revenue counterparty under a long-term power purchase agreement (PPA).

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, Berkshire Hathaway Energy Company (BHE), took over operations from the prior operator, NovaSource Power Services (NovaSource) to self-perform the O&M on the project. BHE has a large portfolio of power generation, including renewable assets and extensive experience self-performing operations at other projects. Fitch will monitor the impact of the transition to the project's operational risk profile, but views positively the alignment of incentives between the sponsor and the day-to-day operations of the project.

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 PG&E extends one month beyond debt maturity. This structure is consistent with a stronger assessment under Fitch's current criteria. All PG&E's obligations were confirmed under its post-filing plan as the utility emerged from bankruptcy.

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 PG&E as the sole revenue counterparty. Publicly rated Solar Star Funding, LLC ('BBB'/Stable) has an average rating case DSCR of 1.47x and is rated investment grade due to the relative strength of its sole revenue counterparty, Southern California Edison Co. ('BBB'/Stable).

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A decline in the credit quality of PPA off-taker, PG&E;

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, PG&E.

CREDIT UPDATE

The ratings affirmation and Positive Outlook revision for PG&E reflects significantly lower levels of wildfire liabilities, during 2019-2023 versus 2017-2018, enactment of Assembly Bill (AB) 1054, credit supportive administration of AB 1054 Wildfire Fund and improving leverage metrics. The Positive Outlook assumes no prudence disallowance or reimbursement of the AB 1054 fund. Outcomes to the contrary would likely result in adverse credit rating actions.

For more information on PG&E, see Fitch's press release 'Fitch Revises PG&E Corp.'s and Pacific Gas and Electric's Outlooks so Positive; Ratings Affirmed,' dated April 12, 2024, available at www.fitchratings.com.

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

Topaz Solar Farms LLC's rating action is linked to Fitch Ratings revision of PG&E's Outlook to Positive from Stable. Fitch also affirmed PG&E's 'BB+' Long-Term Issuer Default Rating. Topaz's Outlook has also been revised to Positive, reflecting the rating action taken on PG&E. Topaz's rating continues to be constrained by the credit quality of PG&E, the project's sole revenue counterparty under a long-term PPA.

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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