DBRS Confirms Capital Power Corporation at Pfd-3 (low)

DBRS has today confirmed Capital Power Corporation’s (CPC or the Company) Preferred Shares rating at Pfd-3 (low) with a Stable trend. CPC’s rating is based on the credit quality of its subsidiary, Capital Power L.P. (CPLP; rated BBB by DBRS). CPC’s rating is notched downward relative to CPLP’s rating to reflect its structural subordination to the debt obligations at CPLP.

On June 20, 2012, DBRS confirmed the rating of CPLP (see DBRS report on CPLP) at BBB with a Stable trend. CPLP has continued to provide stable distributions to its equity holders (based on CPC’s increasing ownership, this amounted approximately to $21 million for the three months ended March 31, 2012, and $55 million for fiscal 2011), which in turn supported CPC’s preferred share dividend payments. CPLP benefits from good wholesale market pricing fundamentals in Alberta, where a majority of its net generation capacity is located. Although CPLP operates in the non-regulated generation segment, it has a reasonable level of contracted output. Approximately 40% of CPLP’s net capacity is contracted for 2012 and it is expected to increase to over 50% by 2016. DBRS expects CPLP to remain a stable source of distributions in the medium term.

CPC has no debt issued at the parent level and is not expected to issue any debt in the foreseeable future. The Company has $122 million of preferred shares outstanding as of March 31, 2012. Preferred shares, as a percentage of common equity, are within the 20% threshold (defined as the percentage of preferred shares outstanding divided by total equity excluding preferreds). For the three months ended March 31, 2012, CPC distributed $1 million to its preferred shareholders and $19 million to its common shareholders ($6 and $51 million to preferred and common shareholders, respectively, in 2011).

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

The applicable methodology is Rating Companies in the Non-Regulated Electric Generation Industry (May 2011), which can be found on our website under Methodologies.