DBRS Assigns “A” Rating to Enersource Senior Unsecured Debentures, Trend Stable

DBRS has today confirmed the Issuer Rating of Enersource Corporation (Enersource or the Company) at “A” with a Stable trend, and has assigned a provisional rating of “A” with a Stable trend to Enersource’s expected $320 million private placement senior unsecured debentures offering. The proceeds from the new issuance will be used to refinance the maturing $290 million debt with Borealis Infrastructure Trust and for general corporate purposes.

Enersource continues to benefit from a low level of business risk stemming from its regulated electricity distribution operations, its solid financial profile and a strong franchise area with a favourable customer mix. The confirmation is also supported by the relatively stable regulatory environment in Ontario. On March 17, 2011, the Ontario Energy Board (OEB) announced electricity distribution rates for Enersource Hydro Mississauga Inc. The net impact of the new distribution rates, which were set using incentive regulation, will be an increase of 0.18% for residential customers using 800 kWh per month.

In December 2009, the OEB changed its methodology for calculating return on equity (ROE), which resulted in an increase in ROE to the mid- to high 9.00% range. However, Enersource will continue to utilize 8.57% for rate-setting until it rebases rates in 2013; at that time it will adopt the then-current allowed ROE (currently 9.58%).

Enersource’s financial metrics have remained stable over time, attributable to generally consistent earnings, cash flows and debt levels. For the year ending December 31, 2010, the Company witnessed an improvement in both financial and operating performance, with cash flow-to-debt of 22.4%, debt-to-capital of 55% and EBIT interest of 2.24 times.

DBRS believes that the Company will be able to fund capital expenditures and dividends with internally generated funds and cash balances on hand, and that Enersource’s financial profile will continue to support the current rating.

Note:
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 the DBRS website under Methodologies.