DBRS Updates Its Report on Emera Inc.

DBRS has today updated its report on Emera Inc. (Emera or the Company). The credit quality of Emera Inc. (Emera or the Company) is based on Emera’s low business risk and is supported by the Company’s strong portfolio of diversified regulated businesses operating in a reasonable regulatory environment.

The Company’s business risk profile is viewed as good, as Emera’s earnings and cash flow are largely generated by its relatively low-risk regulated subsidiaries. Furthermore, dividends and interest income flowing up from its operating subsidiaries continue to adequately cover Emera’s interest and operating costs.

However, the Negative trend reflects DBRS’s concern regarding the ongoing high degree of non-consolidated leverage at the holding company (Holdco) level for the current rating. On a non-consolidated basis, the debt-to-capital ratio had continued to deteriorate since 2008, peaking at approximately 41.5% in Q2 2012. DBRS acknowledges that a significant portion of the debt at the Holdco level was used to fund acquisitions of contracted/regulated assets that add diversification to Emera’s business profile. Going forward, the balance sheet could be further pressured by funding requirements for other regulated capital expenditures (capex), the proposed Maritime Link Transmission Project, a subsea transmission link from Newfoundland to Nova Scotia and Emera’s 29% interest in the transmission link between the island of Newfoundland and Labrador.

Resolution of the Negative trend will follow a full assessment of Emera’s plans to reduce its non-consolidated debt to levels commensurate with its current rating and its overall financing strategy on proposed projects in the next five years.

Notes:
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.