DBRS Confirms AltaLink, L.P. at “A” and R-1 (low), Stable Trends

DBRS has today confirmed the ratings of AltaLink, L.P.’s (ALP or the Partnership) Senior Secured Bonds and Medium-Term Notes (Secured) at “A” and Commercial Paper at R-1 (low). The ratings confirmation is based on its low-risk regulated transmission business, a supportive regulatory environment in Alberta and the Partnership’s adequate financial profile. ALP’s regulated transmission business in Alberta accounts for 100% of total earnings and assets.

Regulation in Alberta has remained supportive for ALP. The Alberta Utilities Commission (AUC) is expected to continue to allow the Partnership to maintain adequate coverage, cash flow and leverage ratios due to the Alberta government’s commitment to meet the continued high growth of electricity consumption and renewable energy developments in the province without compromising reliability. The confirmation assumes that ALP’s transmission revenue base will continue to grow favourably to support a high level of capital expenditure, which is expected to far exceed depreciation. Alberta’s growth in electricity consumption exceeds average national electricity demand growth. The projected execution risk is expected to be manageable despite escalating costs in Alberta; the Partnership has a good track record of successfully completing large projects on time and within budget.

As a result of the ongoing high investment commitment, DBRS expects a temporary weakening of ALP’s coverage and cash flow ratios in the 2012-2014 period. However, these ratios are expected to gradually recover when substantial capex projects are completed. DBRS expects the Partnership to fund any significant cash flow deficits as a result of increased capital spending in a prudent manner; that is, via an equity injection from its indirect owner, SNC-Lavalin Group Inc. (SNC; rated BBB (high) with a Stable trend by DBRS). As a result, leverage is expected to remain relatively stable and better than the newly prescribed regulatory debt level of 63% on a longer-term basis. As liquidity requirements are expected to increase over the next few years, largely driven by capex, the ratings assume that the Partnership will increase credit facilities to maintain its financial flexibility.

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.