DBRS Confirms Arctic Glacier Inc.

DBRS has today confirmed the ratings for Arctic Glacier Inc. (AGI) and Arctic Glacier International Inc. (AGII and, together with AGI, Arctic Glacier or the Company), removed from Under Review-with Developing Implications status where they were placed on November 1, 2006 because of proposed changes to the taxation of Income Funds.

Removal from Under Review reflects Arctic Glacier’s relatively unique status in the income fund market. As approximately 70% of annual taxable income is derived outside of Canada, the proposed changes to the taxation of income funds are not expected to have an impact on Arctic Glacier’s ability to maintain distributions at current levels and maintain a consistent leverage policy.

Indicative of this consistent leverage policy, Arctic Glacier recently returned credit metrics to historic levels through a $70 million equity issue. This equity reduced debt which had been used to finance acquisitions in 2006. These acquisitions bolstered the Company’s position as one of two large participants in a fragmented and consolidating market. Arctic Glacier’s acquisition strategy has resulted in greater critical mass, better leveraging of fixed costs and stronger geographic diversification, which helps to counteract the sensitivity to regional weather conditions. In particular, the acquisition of California Ice also takes Arctic Glacier into markets with a longer peak season for ice consumption.

The company is the market-share leader in most areas in which it operates, providing advantages such as greater route density, more efficient operations; opportunity to supply large retailers who favour larger suppliers and the ability to develop a brand name in a commodity type industry.

The company remains susceptible to risks relating to weather which may create cyclicality. Additional challenges include integration risks; sensitivity to input costs, including energy and packaging; and sensitivity to currency movements. Credit ratings are also constrained by the Company being owned by an income fund, resulting in most operating cash flows (after maintenance capex) being used for distributions to unit-holders. Acquisitions are likely to continue but are expected to be on a smaller scale as few large opportunities remain.

Note:
All figures are in Canadian dollars unless otherwise noted.