DBRS Confirms Electricity Distributors Finance Corporation at A (low)

DBRS has today confirmed the rating on the Series 2002-1 Certificates (the Certificates) issued by Electricity Distributors Finance Corporation (EDFIN) at A (low) with a Stable trend. The rating is based on the lowest-rated of the two participants, Enwin Utilities Ltd. (Enwin), rated A (low).

The Certificates represent undivided co-ownership interests in unsecured debentures issued by two participating local distribution companies (LDC Participants), namely PowerStream Inc. (PowerStream) and Enwin to EDFIN. The obligations of the individual LDC Participants is several and not joint, and each LDC Participant is liable only for its obligations and not for the obligations of any others. Default of the obligations to EDFIN of one LDC Participant will result in a proportionate default of the unsecured debentures issued by EDFIN. Therefore, the rating of the Certificates is based on the rating of the lowest-rated LDC Participant, Enwin.

In December 2008, DBRS confirmed the debt rating of EDFIN at A (low) following the approval from the Ontario Energy Board (OEB) for the amalgamation of PowerStream and Barrie Hydro Distribution Inc., both rated “A” by DBRS. The combined entity created the second largest electricity local distribution company in Ontario, serving over 300,000 customers, and benefits from better operational efficiencies and cost-effectiveness than the previously separate entities. PowerStream’s resultant operating profile, balance sheet and credit metrics were consistent with historical levels, regulatory approved levels and the assigned rating category of “A”.

DBRS has confirmed the rating of Enwin at A (low) with a Stable trend. Enwin continues to maintain a reasonable financial profile, reflecting its improving balance sheet and credit metrics. However, DBRS expects Enwin’s heightened capital expenditure profile for 2009 to 2011 to result in some moderation in credit metrics over the medium term. While credit metrics are expected to modestly decline, they will remain supportive of Enwin’s A (low) rating.

The rating of PowerStream has been confirmed at “A” with a Stable trend, as PowerStream continues to benefit from a strong financial profile. However, leverage has increased marginally to 60% over the near term due to the increased capital expenditures from the construction of a new transformer station and the installation of Smart Meters. Given the Company’s stated policy of maintaining leverage at 60%, in line with the OEB-approved deemed capital structure, DBRS expects the credit metrics to remain at a level appropriate for an “A” rating.

Overall, the two LDC Participants continue to benefit from a low level of business risk stemming from their regulated electricity distribution operations, solid financial profile and strong franchise areas with a favourable customer mix. The rating confirmation on the LDC Participants is also supported by the regulatory outlook in Ontario.

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

The applicable methodology is Rating Utilities (Electric, Pipelines & Gas Distribution), which can be found on our website under Methodologies.

This is a Corporate (Utilities & Independent Power) rating.