DBRS Comments on EPCOR Utilities Inc. Announcement

DBRS notes that EPCOR Utilities Inc. (EPCOR) announced today that its wholly owned subsidiary, EPCOR Water (USA) Inc. (EPCOR USA), has entered into an agreement for the acquisition of 100% of the stock of Arizona American Water and New Mexico American Water, wholly owned subsidiaries of American Water Works Company, Inc., for a total consideration of US$470 million (which includes approximately US$10 million of EPCOR USA long-term debt). The acquisition is subject to regulatory approval, which is anticipated in the first quarter of 2012.

The proposed acquisition is in line with EPCOR’s growth strategy of focusing on investment opportunities in rate-regulated businesses. EPCOR’s intention is to gradually monetize its indirect interest in Capital Power Corporation (CPC) over the medium term to fund its regulated utility growth strategy; in December 2010, it received gross proceeds of approximately $221 million from the sell-down of a portion of its investment in CPC. The proposed acquisition is to be funded with a combination of cash and debt financing, which DBRS believes will preserve EPCOR’s current financial profile and liquidity. Given this, and the regulated nature of the businesses to be acquired, the proposed acquisition, if closed, would have no impact on EPCOR’s current credit ratings of A (low) and R-1 (low).

EPCOR currently indirectly owns approximately 60.5% of the common shares of CPC, on a fully diluted basis, which it intends to sell as its demands for capital require and as market conditions permit.

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

The applicable methodology is Rating North American Energy Utilities (Electric, Natural Gas, and Pipelines), which can be found on our website under Methodologies.