DBRS Confirms Ratings of Canadian Utilities Limited at R-1 (low), “A” and Pfd-2 (high), Stable Trends

DBRS has today confirmed the ratings of the Commercial Paper, Unsecured Debentures and Cumulative Preferred Shares of Canadian Utilities Limited (CU or the Company) at R-1 (low), “A” and Pfd-2 (high), respectively, all with Stable trends. The ratings reflect the Company’s stable portfolio of regulated, low-risk utilities, strong cash flows from its diversified non-regulated operations and its strong financial profile.

The diversity of CU’s asset base provides stability to overall earnings and cash flow, with earnings split approximately 58/42 between CUI’s regulated operations and CU’s non-regulated businesses (including ATCO Gas Australia). DBRS notes that dividends flowing up from CUI has significantly declined over the past two years as CU continues to provide support to CUI during the build-out phase and to preserve the utility’s credit profile. The decline is offset by strong dividends coming from its regulated generation business and non-regulated operations and by CU’s significant cash balance compared with its modest debt and preferred obligations. CU is expected to issue more long-term debt/preferred shares to fund its equity requirement at CUI over the next two years, however, the Company’s non-consolidated debt to capital will remain below 20%.

Though the Company’s non-regulated businesses continue to generate strong earnings and cash flow, they remain exposed to the volatility in natural gas prices and electricity prices in Alberta and the United Kingdom. This risk is largely mitigated by the high contracted portion of its non-regulated generation portfolio and minimal double leverage at the CU level, as all the projects are financed on a non-recourse basis.

In line with the Company’s strategic direction, DBRS expects that CU will continue to evaluate/make strategic acquisitions such as the recent gas utility acquisition in Australia in the medium to long term. However, we expect that CU will exhibit continued financial discipline and maintain the financial flexibility and liquidity ($613 million in cash and $854 million of credit facilities) required to support its regulated growth at CUI.

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.