DBRS Comments on Capital Power L.P.

DBRS notes that Capital Power Income L.P. (CPILP or the Partnership) and Atlantic Power Corporation (Atlantic Power, not rated by DBRS) have jointly announced today that they have entered into an agreement (the Agreement) pursuant to which Atlantic Power will acquire, directly and indirectly, all of the outstanding limited partnership units of CPILP for $19.40 per limited partnership unit, payable in cash or shares of Atlantic Power, with the cash/share portions subject to certain limits (the Transaction). Capital Power L.P. (CPLP; rated BBB with a Stable trend), a subsidiary of Capital Power Corporation (CPC, rated Pfd-3 (low), with a Stable trend) is the 29% indirect owner and manager of CPILP.

The Transaction is a result of the strategic review process (announced in October 2010) undertaken by a special committee of independent directors of CPI Income Services Ltd., the general partner of CPILP, in co-operation with CPC, to evaluate a broad range of alternatives to maximize unitholder value. The agreed-upon price of $19.40 represents a 4% premium to the CPILP closing price of $18.63 on June 17, 2011.

CPC is expected to receive total consideration of approximately $320 million for its ownership interest in CPILP, in a mix of cash, APC shares and assets. As part of the Agreement, CPILP will sell its Roxboro and Southport facilities, located in North Carolina, to CPC subsidiary CPLP for a purchase price valuing the facilities at $121 million (forming a portion of CPC’s total consideration received). DBRS notes that details on the negotiated final power purchase agreements (PPAs) with Progress Energy for these facilities are still pending. If the PPAs are finalized as currently contemplated, DBRS expects the cash flow contribution from these facilities to return to positive levels.

Closing of the Transaction is not expected to have any impact on the rating of CPC or CPLP, given the modest cash contribution of CPILP to CPLP, and the consideration to be received. The ratings of CPILP are being maintained Under Review with Negative Implications (see the separate DBRS press release published today for further details).

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

The applicable methodology is Rating Companies in the Non-Regulated Electric Generation Industry, which can be found on our website under Methodologies.