DBRS Comments on Hydro Ottawa’s Acquisition

DBRS has today noted that Hydro Ottawa Holding Inc. (Hydro Ottawa) announced the signing of a purchase and sale agreement for three hydroelectric plants and a 38.3% interest in the Ring Dam at Chaudière Falls from Domtar Corporation for up to $45 million (the Acquisition). The transaction is expected to be closed by the end of Q3 2012.

Hydro Ottawa’s financial profile is expected to remain reasonable for the current rating category following the Acquisition. While Hydro Ottawa’s debt level is expected to increase by up to approximately $45 million (approximately 20% to $250 million from the Q1 2012 level) as a result of the Acquisition, pro forma leverage ratios would remain favourable compared with its peers.

Debt-to-capital ratio following the Acquisition would increase modestly to around 47% from 42% as at March 31, 2012, which is well within the regulatory capital structure of 60% debt and 40% equity. Other key credit metrics, including debt-to-cash flow and interest coverage, are expected to remain within the rating category.

Note:
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 (May 2011), which can be found on the DBRS website under Methodologies.