DBRS Confirms Gaz Métro inc. at “A” and R-1 (low), Stable Trends

DBRS has today confirmed the ratings of Gaz Métro inc.’s (GMi or the Company) First Mortgage Bonds (FMBs) and Commercial Paper (CP) at “A” and R-1 (low), respectively, both with Stable trends. The rating of GMi is based on the credit quality of GazMétro Limited Partnership (GMLP or the Partnership), which guarantees GMi’s FMBs, and a secured credit facility that supports the CP. GMi is the general partner of GMLP and serves as its financing entity. The funds that it raises are loaned to the Partnership on similar terms and conditions.

The credit quality of the Partnership is supported by its low business risk, as most of its earnings are generated from regulated energy distribution (80%) and regulated pipelines and storage businesses (16%), with the remaining earnings from the non-regulated business. Cash flow stability is underpinned by a supportive regulatory regime in Québec, a reasonable regulatory framework in Vermont and contractual agreements in the pipeline operations. GMLP has no commodity price risk and benefits from a revenue stabilization mechanism, which mitigates volume risk in Québec where a substantial portion of its earnings are generated.

In July 2011, GMLP agreed to acquire Central Vermont Public Service Corporation (CVPS), the largest electric distributor in Vermont, for USD 525 million (Acquisition) plus the assumed debt. GMLP intends to finance the USD 525 million acquisition with 50% debt/50% equity. DBRS views the impact of the Acquisition on GMLP’s business risk profile as modestly positive, as it would further diversify the source of cash flow to GMLP and increase earnings contributions from its low-risk energy distribution operations (by approximately 11%). The intended financing plan would slightly improve GMLP’s non-consolidated capital structure and allow it to maintain solid cash flow interest coverage. The Acquisition is expected to close in Q3 2012.

The rating confirmation incorporates DBRS’s expectation that GMLP will remain prudent in its future expansion and financing plans to maintain its business risk and financial profiles commensurate with DBRS’s “A” rating guidelines.

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

The rating of Gaz Métro inc.’s First Mortgage Bonds is guaranteed by GazMétro Limited Partnership.

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.