DBRS Confirms AltaGas Ltd. at BBB and Pfd-3, Trends Stable

DBRS has today confirmed the rating on the Medium-Term Notes (MTNs) and the Issuer Rating of AltaGas Ltd. (AltaGas or the Company) at BBB and on the Preferred Shares – Cumulative at Pfd-3, all with Stable trends. The confirmation reflects: (1) continuing progress on the Company’s goal to grow and diversify earnings and cash flow while reducing its business risk; (2) mitigation of cost overrun risks on its major growth projects and (3) a reasonable financing plan for the 2011 to 2014 growth phase, supported by strong liquidity.

On August 30, 2012, AltaGas acquired SEMCO Holding Corporation (SEMCO), the sole shareholder of SEMCO Energy, Inc., a regulated public utility company with natural gas distribution and storage operations in Michigan and Alaska (see DBRS press release dated February 1, 2012, for details). DBRS expects the overall impact of the acquisition on AltaGas’s credit profile to be modestly positive, with improvement in AltaGas’s business risk profile through the addition of relatively low-risk, regulated natural gas distribution and storage assets in Michigan and Alaska being partly offset by a negative impact on key credit metrics.

DBRS estimates that, with the SEMCO acquisition and related financing, combined with the $144 million common share offering completed on November 15, 2011, and the December 20, 2011, Pacific Northern Gas Ltd. (PNG) acquisition, total debt-to-capital ratio would rise from 47% as at September 30, 2011, to 55% on a pro forma basis as at June 30, 2012, and its cash flow-to-debt ratio would drop from 20% to 12%.

As noted previously, DBRS expects some deterioration in the Company’s key credit metrics during its growth phase from 2011 to 2014, with recovery expected toward the end of the period as cash shortfalls are to be primarily funded by debt. DBRS expects AltaGas to manage the construction period risks (e.g., cost overruns, completion delays, large financing requirements and potential deterioration of credit metrics) for all of its projects, and the PNG and SEMCO acquisitions, within the context of its current BBB rating and total debt-to-capital ratio in the low-to-mid-50% range, with cash flow-to-debt in the high-teens to low-20% range, as calculated by DBRS. If the Company’s ratios do not move closer to the above-noted ranges (from the pro forma levels) over the near to medium term, its credit ratings could come under negative pressure.

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

The applicable methodologies are Rating North American Pipeline and Diversified Energy Companies and Rating Companies in the North American Energy Utilities (Electric and Natural Gas) Industry, which can be found on our website under Methodologies.