DBRS Confirms FortisBCHoldings Inc. at BBB (high), Stable Trend

DBRS has today confirmed the Medium-Term Note Debentures (MTNs) ratings of FortisBC Holdings Inc. (FHI or the Company) at BBB (high). The trend is Stable. The rating of FHI is based on the following factors:

(1) Strong dividends from its regulated utilities, FortisBC Energy Inc. (FEI, rated “A”), FortisBC Energy (Vancouver Island) Inc. (FEVI) and FortisBC Energy (Whistler) Inc. (FEW): The focus for DBRS is largely on FEI and FEVI, which accounted for nearly 90% of dividends received by the Company (DBRS estimates). These utilities have strong business risk profiles, with most of their cash flow generated from regulated natural gas transmissions, distributions and storage operations, within a reasonable regulatory framework in British Columbia.

(2) Strong non-consolidated credit metrics for the current rating category: FHI’s total external debt-to-capital ratio of 6.3% (34% including debt owed to Fortis Inc.) and cash flow-to-interest coverage of near 18.33 times (x) (over 3.20x including all interest expenses).

(3) Strong financial support from the parent: At the end of 2011, over 80% of FHI’s total debt ($899 million) was owed to its parent, Fortis Inc., rated A (low). External debt has been reduced substantially to $127 million from $459 million in 2007 by a loan provided by Fortis Inc.

FHI’s rating, which is two notches lower than FEI’s, reflects the following: (a) debt at FHI is structurally subordinate to debt at FEI; (b) debt at FHI is also structurally subordinate to the debt at FEVI and FEW, which have weaker credit worthiness than FEI due to their significantly smaller operations and customer base; and (3) there are strong ring-fencing conditions imposed on FEI and FEVI by the regulator, with respect to dividend payout to FHI and their capital structures.

However, DBRS notes that FHI’s current parent, Fortis Inc., has a stronger credit profile than its previous parent (Kinder Morgan Kansas Inc., rated BBB (low)). DBRS believes that a stronger parent and lower debt levels are positive factors for FHI’s credit quality.

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

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