DBRS eyes H2O Power, Watergen negatively

DBRS said it placed the A (low) issuer and the senior secured bonds ratings of H2O Power LP and Watergen Canada Holdings Inc. under review with negative implications.

The agency said it is evaluating the ratings because of the potential for a breach of a financial covenant under the financing documents, considered an event of default, because the issuer may fail to maintain a debt service coverage ratio of at least 1x, which is calculated quarterly based on last 12 month financial results.

“DBRS Morningstar notes that the lenders have provided an irrevocable waiver for the anticipated default for the periods ending May 31, 2022, and August 31, 2022; however, the waiver does not apply to the period ending November 30, 2022, or beyond, which leaves uncertainty that an EOD could occur as the projected DSCRs are dependent on hydrology, and the assumption that no operational issues will occur, etc.,” the agency said in a press release.

At the bottom of the DSCR problem is “extremely poor hydrology” across all eight of the co-issuers’ hydroelectric plants, DBRS said.

The review could be resolved when DBRS deems there is no risk of breaching the DSCR financial covenant for the period ending Nov. 30 or beyond, the agency said.

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