DBRS Confirms Algonquin Power Co. at BBB (low), Stable

DBRS has confirmed both the Issuer Rating and Senior Unsecured Debentures rating of Algonquin Power Co. (APCo or the Company) at BBB (low), with Stable trends. The ratings reflect the APCo’s reasonable contract protection, diversified portfolio and financial profile.

As a result of ongoing high investment commitments, DBRS expects a temporary weakening of APCo’s coverage and cash flow ratios in the short to medium term. However, these ratios are expected to gradually recover when substantial capex projects are completed. The Company has an active development plan for the next five years to grow its clean and renewable energy business, including a 50% interest in a U.S. wind power generation portfolio of 480 megawatts (MW). Most of the newly completed and to-be-completed facilities are fully contracted wind power generation facilities. New construction and/or acquisition of facilities have been funded by a combination of internally generated cash flow, equities and modest borrowings, which is consistent with its existing capital structure and results in fairly stable leverage. DBRS expects APCo to continue funding significant cash flow deficits in a prudent manner.

The ratings are constrained by renewable resource and production risk, wholesale power price risk, and the uncertainties in the execution of the construction and development plan. Delay in completion or underperformance of the newly built facilities could cause erosion of credit metrics. In addition, the current unsecured debenture issue will be ranked behind a $155 million senior secured credit facility, which will be used from time to time to provide interim financing for construction activities until permanent financing with tenors matching the life of the assets can be put in place. The debentures are also structurally subordinated to a total of approximately $62 million in borrowings at three of APCo’s operating subsidiaries.

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

The applicable methodology is Rating Companies in the Non-Regulated Electric Generation Industry, which can be found on our website under Methodologies.