DBRS Confirms Enwin Utilities Ltd. at A (low), Stable

DBRS has today confirmed the Issuer Rating of Enwin Utilities Ltd. (Enwin or the Company) at A (low) with a Stable trend. The confirmation reflects Enwin’s strong financial profile and low business risk profile, which stems from its stable regulated electricity distribution operations and good record of operational efficiency.

Enwin’s rating has been supported by its strong financial profile, reflecting a low-leverage balance sheet and very strong interest coverage and cash flow ratios for the current rating category. All credit metrics have been relatively stable over the past few years. DBRS notes that the Company’s capital expenditures (capex) for 2011 were lower than its peak levels in 2009 and 2010, which were largely driven by higher spending on improvements in reliability and the funding of the smart meters installation. As a result, the Company generated a cash flow surplus, which was used to modestly reduce debt in 2011 and Q1 2012. Enwin is maintaining a relatively low leverage ratio in the 40% range, which provides the Company with significant financial flexibility.

Enwin’s low business risk profile is underpinned by a stable regulatory framework. The Company currently operates under the Incentive Regulation Mechanism (IRM) and is expected to have its rebasing year in the period of May 2014 to April 2015. DBRS views IRM as reasonable, as it allows utilities to pass on purchased power costs and recover prudent capex incurred during the IRM period in the rebasing year. Current allowed return on equity (ROE) of 9.69% is reasonable.

Despite these strengths, Enwin has significant exposure to large industrial customers, particularly in the auto sector; however, DBRS notes that the impacts of the 2008 economic downturn and the restructuring of the auto sector were manageable. In addition, Enwin operates in a relatively weak franchise area with minimal load growth.

DBRS expects that Enwin will continue to maintain its conservative leverage strategy to support its current rating. DBRS notes that Enwin has $50 million in debt (approximately 80% of its total debt) owed to Electricity Distributors Finance Corporation (EDFIN), maturing in August 2012. DBRS does not expect any major refinancing issues for Enwin, given its stable regulated business profile and strong financial profile.

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.