DBRS Confirms Atlantic Power Limited Partnership at BB, Stable

DBRS has today confirmed the ratings of Senior Unsecured Debt and Medium-Term Notes (the Notes) of Atlantic Power Limited Partnership (APLP; formerly Capital Power Income L.P.) and the Cumulative Preferred Shares of Atlantic Power Preferred Equity Ltd. (formerly CPI Preferred Equity Ltd.) at BB and Pdf-4, respectively, both with Stable trends. The rating of APLP is based on the credit quality of Atlantic Power Corporation (ATP or the Company; not rated by DBRS) given that APLP guarantees the majority of ATP’s debt at the holding company level (total holding company debt at ATP accounted for 36% of consolidated debt, June 30, 2012). The recovery rating of the Notes is RR4 (indicating an expected recovery of 30% to 50%).

The credit profile of ATP reflects its moderate business risk profile, which benefits from a diversified portfolio of generation assets (2,141 megawatts of net generating capacity) located in 11 states in the U.S. and two provinces in Canada. Over 95% of its net generating capacity is under power contracts (PPAs), with a significant portion of contracted capacity having capacity payments and fuel cost pass-through. PPAs substantially reduce ATP’s exposure to wholesale power price volatility and support cash flow stability. In addition, ATP has above-average operational efficiency with a capacity factor of over 90% (five-year average), which is key to maintaining steady capacity payments.

Following the acquisition of APLP, ATP’s financial profile weakened significantly, predominately due to higher leverage and weaker cash flow ratios. ATP’s balance sheet is expected to continue to be pressured by the ongoing high level of capex associated with the Canadian Hills and Piedmont Green Power projects in 2012. In the medium to long term, APT’s financing strategy is to reduce the consolidated debt-to-capital ratio (currently at 67%) to 50%. Should the Company successfully execute its deleveraging strategy and build a strong track record of maintaining a good financial profile, this will have a positive credit implication.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Companies in the Non-Regulated Electric Generation Industry (May 2011) and DBRS Criteria: Rating Leveraged Finance (June 2011), which can be found on our website under Methodologies.