Press Release
DBRS Places Canadian Income Trust & Related Entities “Under Review – Dev”
Utilities & Independent PowerDominion Bond Rating Service (DBRS) has today placed the stability ratings of select Canadian income trusts and their long-term debt ratings, as well as those of their related entities, Under Review with Developing Implications, following the Federal Government’s announcement to make significant changes to the way in which Canadian income trusts (the Trusts) will be taxed in the future. This rating action excludes the traditional REITs that hold investments in real assets (see separate press release). While there is no guarantee that the proposals will pass through the legislative process, the changes would mean existing income trusts would become taxable beginning in 2011, while any newly created trusts would be subject to the new rules beginning in the 2007 tax year.
For Trusts that simply plan to reduce the level of their distributions to unitholders to reflect the additional tax burden, the reduction would be viewed as a one time event and DBRS’s analytical focus would then be on the stability and sustainability of distributions following the adjustments. Under this scenario, the debt and stability ratings would likely be confirmed.
However, the proposed legislation could encourage certain Trusts to develop alternative capitalization or operating strategies. Until DBRS is able to discuss these issues with those Trusts, their ratings would remain Under Review. The Trusts’ strategies could vary meaningfully, including:
--Trusts that may make no changes and stay the course without strategic alterations while focusing on reducing the tax impact through growth over the next four years
-- Trusts that may add debt and increase leverage significantly
-- Trusts that may consider reverting back to a corporate status, under which dividend payout reductions would enable more cash to be retained for future growth
Additional considerations that will be evaluated include:
--The impact of the legislation on some Trusts’ ability to access capital markets
-- Any changes made by Trusts that effectively mitigate the tax impact
-- The possibility of heightened event risk from acquisition strategies intended to speed up growth.
As greater clarity becomes available, and individual income trust strategies are known, DBRS will take the appropriate rating actions.
DBRS is a recognized, international rating agency, providing timely and comprehensive rating opinions to the world’s capital markets. Privately owned and independent, DBRS offers in-depth credit analysis of corporate, financial institutions and government issues in North America, Europe, Asia and Latin America. DBRS's extensive coverage of structured finance and securitization has solidified its standing as a leading provider of comprehensive, in-depth credit analysis.
DBRS is headquartered in Toronto, with offices in New York, Chicago, London, Frankfurt and Paris, and covers entities worldwide.
Ratings
ARC Energy Trust
Algonquin Power Income Fund
AltaGas Ltd.
Arctic Glacier Inc. and Arctic Glacier International Inc.
Arctic Glacier Income Fund
Atlantic Power Corporation
Baytex Energy Corp.
Bell Aliant Regional Communications Income Fund
Bell Aliant Regional Communications, Limited Partnership
Bell Nordiq Income Fund
Bonavista Energy Corporation
Boralex Power Income Fund
Brookfield Renewable Power Fund
CML Healthcare Income Fund
CanWest MediaWorks Income Fund
Canadian Hotel Income Properties REIT (CHIP)
Canadian Oil Sands Limited
Canadian Oil Sands Trust
Canetic Resources Trust
Chartwell Seniors Housing Real Estate Investment Trust
ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.
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