DBRS Assigns Pfd-3 Provisional Rating to TransAlta Corporation’s New Preferred Shares Issue

DBRS has today assigned a provisional rating of Pfd-3 with a Stable trend to the Preferred Shares to be issued by TransAlta Corporation (TAC or the Company). TAC plans to issue $225 million of cumulative redeemable rate reset first Preferred Shares, Series E (Series E Preferred Shares), which includes the exercised underwriters’ option. The offering is expected to close on or about August 10, 2012. TAC’s ratings are currently Under Review with Developing Implications, and the review will include this provisional rating, pending the successful completion of the issuance.

As stated on the DBRS report dated April 27, 2012, and press release dated July 23, 2012, DBRS expects TAC to fund the majority of the net cash cost associated with Sundance A penalties and repairs with equity (including preferred shares and dividend re-investment proceeds). As a result, concurrent with the successful issuance of the Series E Preferred Shares, DBRS expects to remove TAC’s Unsecured Debt/Medium-Term Notes and Preferred Shares from Under Review with Developing Implications and confirm them with a Stable trend. In addition, for TAC to maintain the current ratings, DBRS expects any additional significant unforeseen costs or cash shortfalls to be funded through equity (including preferred shares and dividend re-investment proceeds).

The Series E Preferred Shares will have an annual dividend rate of 5.00%, payable quarterly, for the initial fixed-term period ending September 30, 2017. The dividend rate will reset on September 30, 2017, and every five years thereafter at a rate equal to the five-year Government of Canada bond yield plus 3.65%. The holders of the Series E Preferred Shares will have the right, at their option, to convert their shares into cumulative redeemable floating rate reset first preferred shares, Series F (Series F Preferred Shares), subject to certain conditions, on September 30, 2017, and on September 30 every five years thereafter. Holders of the Series F Preferred Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the 90-day Government of Canada Treasury Bill yield plus 3.65%.

The Series E Preferred Shares are to be issued pursuant to a prospectus supplement that will be filed with the securities regulatory authorities in all provinces of Canada under TAC’s short-form base shelf prospectus dated November 15, 2011. The Series E Preferred Shares will rank in parity with each other series of Preferred Shares of TAC and senior to all other common shares of TAC with respect to priority on the payment of dividends, return of capital and the distribution of assets on the dissolution, liquidation or winding-up of TAC. Net proceeds from the offering will be used to partially fund capital projects, for other general corporate purposes and to reduce short-term indebtedness of the Company and its affiliates.

The finalization of the rating is contingent upon receipt of final documents conforming to information already received.

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 the DBRS website under Methodologies.