DBRS Confirms Ratings of Canadian Utilities Limited at “A”, R-1 (low) and Pfd-2 (high), Stable Trends

DBRS has today confirmed the ratings of the Unsecured Debentures, Commercial Paper and Cum. Preferred Shares of Canadian Utilities Limited (CU or the Company) at “A”, R-1 (low) and Pfd-2 (high), respectively, with Stable trends. The ratings reflect the Company’s consistently strong financial profile and relatively stable business risk profile.

CU’s regulated operations account for approximately 55% to 60% of total earnings and continue to generate strong and stable cash flows, benefitting from a relatively stable regulatory environment. While non-regulated operations, primarily comprised of non-regulated generation and natural gas midstream activities, have higher business risk, DBRS notes that they provide reasonable earnings and cash flow diversification. CU’s non-regulated generating assets benefit from the high level of contracted output.

DBRS assesses CU’s financial profile based on a non-consolidated basis. CU’s financial metrics have remained very strong as a result of the following: (1) CU has low debt leverage at the parent level with debt comprised of a $100 million debenture and approximately $37 million from a credit facility as at December 31, 2011. As a result, total adjusted debt-to-capital is estimated to be low, at around 8%, well within DBRS’s 20% threshold on a non-consolidated basis. The non-regulated businesses are mainly funded through project financing at the subsidiary level and through issuances of preferred shares by CU. (2) The Company has significant liquidity with a cash balance that exceeds its debt amount. (3) CU’s 52.7% shareholder (ATCO Ltd. (ATCO); rated A (low)) has cash requirements primarily limited to its funding of common dividends. ATCO has no bonds/debentures outstanding and its cash needs are more than covered by CU’s dividend.

Due to significant capital expenditure requirements, CU’s regulated entity, CU Inc. (CUI; rated A (high)) is expected to continue to require financial support from CU, at least over the next few years, which is likely to be in the form of reduced dividends. DBRS believes that CU’s financing strategy is reasonable, and barring any major changes, the current financial profile is expected to be maintained.

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.