DBRS Confirms FortisBC Holdings Inc. at BBB (high), Stable

DBRS has today confirmed the rating of the Medium-Term Note Debentures (MTNs) of FortisBC Holdings Inc. (FHI or the Company) at BBB (high). The trend is Stable. The rating of FHI is based on the following factors:

(1) Reasonable dividends and investment income from its regulated utilities, FortisBC Energy Inc. (FEI, rated “A”), FortisBC Energy (Vancouver Island) Inc. (FEVI), and FortisBC Energy (Whistler) Inc. (FEW). The focus for DBRS is largely on FEI and FEVI, which accounted for over 90% of consolidated cash flow of the Company (first six months of 2012; DBRS estimates). These utilities have stable cash flow generated from regulated natural gas transmissions, distributions and storage operations. The regulatory framework in British Columbia has been reasonable.

(2) Good non-consolidated credit metrics. FHI’s external debt-to-capital ratio of 6.5% (at June 30, 2012) and cash flow-to-interest ratio of 3.27 times (six months to June 30, 2012) are viewed as good for the current rating.

(3) Strong financial support from the parent. At the end of June 2012, approximately 87% of FHI’s total debt was owed to its parent, Fortis Inc. (rated A (low)). External debt has been reduced substantially to $125 million (June 30, 2012) from $459 million in 2007 by loans provided by Fortis Inc.

FHI’s rating, which is two notches lower than FEI’s, reflects the following: (a) debt at FHI is structurally subordinate to debt at FEI; (b) debt at FHI is also structurally subordinate to the debt at FEVI and FEW, which have weaker creditworthiness than FEI due to their significantly smaller operations and respective customer bases; and (c) there are restrictive ring-fencing conditions imposed on FEI, FEVI and FEW by the regulator, with respect to dividend payouts to FHI and their capital structures.

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

The applicable methodology is Rating Companies in the North American Utilities (Electric and Natural Gas) Industry, which can be found on our website under Methodologies.