DBRS Confirms Enwin Utilities Ltd. at A (low), Stable Trend

DBRS has today confirmed the Issuer Rating of Enwin Utilities Ltd. (Enwin, formerly Enwin Powerlines Ltd., or the Company) at A (low) with a Stable trend. The confirmation reflects Enwin’s strong financial profile and stable and low business risk profile, stemming from its stable regulated electricity distribution operations and a good record of operational efficiency.

Enwin’s rating has been supported by its strong financial profile, reflecting a low-leverage balance sheet and very strong interest coverage and cash flow ratios for the current rating category. All credit metrics have been relatively stable over the past few years. DBRS notes that the Company’s capex for 2011 was lower than its peak levels in 2009 and 2010, which were largely driven by higher spending to improve reliability and fund the installation of smart meters. As a result, the Company generated a cash flow surplus (after working capital), which was used to modestly reduce debt in 2011. The Company has continued to maintain its leverage ratio in the mid-40% range, which is relatively low compared with other utilities. This low leverage provides significant financial flexibility.

Enwin’s low business risk profile is underpinned by a stable regulatory framework. The Company currently operates under the Incentive Regulation Mechanism (IRM) and is expected to have its rebasing year in the 2013-2014 year. DBRS views IRM as reasonable, as it allows utilities to pass on purchased power costs and recover prudent capex incurred during the IRM period in the rebasing year. With a recent change in the Ontario Energy Board’s (OEB) return-on-equity (ROE) calculation, a higher ROE in the mid-9.00% range is expected for Enwin in the next rebasing year.

Despite these strengths, Enwin has significant exposure to large industrial customers, particularly in the auto sector. In addition, Enwin operates in a relatively weak franchise area with minimal load growth. DBRS notes that the impact of the 2008 economic downturn and the restructuring of the auto sector was manageable. Enwin has experienced minimal payment defaults over the past several years, while its distribution rates have continued to increase moderately.

DBRS expects that Enwin will continue to maintain its conservative leverage strategy to support its current rating. DBRS notes that Enwin has $50 million in debt (approximately two-thirds of its total debt) owed to Electricity Distributors Finance Corporation (EDFIN), maturing in August 2012, which they are currently in the process of refinancing. DBRS does not expect any major refinancing issues for Enwin, given its stable regulated business profile and strong financial profile.

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.