DBRS Confirms Fortis Inc. Following the Acquisition Announcement of Central Vermont Public Service Corporation

DBRS has today confirmed the Unsecured Debentures and Preferred Shares ratings of Fortis Inc. (Fortis or the Company) at A (low) and Pfd-2 (low), respectively, both with Stable trends.

The rating confirmation follows the announcement by Fortis of its intention to acquire 100% of the common shares of Central Vermont Public Service Corporation (CVPS) for total consideration of approximately US$700 million, including the assumption of approximately US$230 million in debt. The proposed acquisition is considered manageable for Fortis as it is anticipated to increase the Company’s total consolidated assets by a modest 7%.

CVPS is the largest integrated electric utility in Vermont. CVPS purchases, produces, transmits and distributes and sells electricity to approximately 160,000 customers in Vermont. CVPS is also a 41% shareholder in Vermont Transco LLC, the owner of Vermont’s high-voltage electric transmission system. Fortis will be adding a regulated utility with a reasonable allowed rate of return on common equity of 9.45% for 2011, and an equity component in the capital structure currently of 57%.

DBRS believes the transaction will have a modestly positive impact on Fortis’s overall business risk profile as a result of the acquisition of a stable, lower-risk regulated electric utility that will provide Fortis with further geographic and regulatory diversification. Fortis anticipates using borrowings under its $600 million committed term credit facility to initially purchase the outstanding shares of CVPS. DBRS expects that Fortis will ultimately finance the acquisition in a manner consistent with its current financial profile and the conservative financing philosophy it has displayed in past acquisitions; that is, with a significant portion of the cost to acquire CVPS equity funded with Fortis equity. The Company has stated that it expects the proposed acquisition of CVPS to be accretive to earnings within the first full year of operations.

The transaction is contingent upon obtaining certain shareholder, regulatory and governmental approvals, including that of the Vermont Public Service Board and the U.S. Federal Energy Regulatory Commission. The Company expects the transaction to close in six to 12 months.

DBRS notes that, unrelated to this transaction, Fortis today announced a bought deal share offering for gross proceeds of $300.3 million, with an over-allotment option that would bring the proceeds to $345.345 million, if fully exercised. Proceeds from the transaction will be used to repay amounts outstanding under the Company’s credit facility and to finance additional equity injections into western Canadian regulated utilities, as well as the non-regulated Waneta Expansion Limited Partnership, in support of infrastructure investment and for general corporate purposes.

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

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