DBRS Updates Report on Manitoba Hydro

DBRS has today updated its report on The Manitoba Hydro-Electric Board (Manitoba Hydro or the Utility). On September 4, 2012, DBRS confirmed the Long-Term Obligations and Short-Term Obligations ratings of Manitoba Hydro at A (high) and R-1 (middle), respectively. The trends are both Stable. Both the Short-Term Obligations and Long-Term Obligations of Manitoba Hydro represent a direct obligation (see the methodology DBRS Criteria: Guarantees and Other Forms of Explicit Support for further detail) of the Province of Manitoba (the Province; rated A (high); see DBRS’s report on the Province dated September 4, 2012). As a result, Manitoba Hydro’s ratings are a flow-through of the Province’s ratings based on (1) the implicit support of the Province as Manitoba Hydro is for all purposes an agent of the Province and (2) the unconditional guarantee provided by the Province on the majority of the Utility’s outstanding third-party obligations.

Manitoba Hydro is undergoing a substantial capital expenditure (capex) program to refurbish its aging infrastructure and develop new hydro generation and transmission facilities. Capex has remained high over the past five years, well above historic depreciation levels. The utility is expected to continue to spend on growth projects over the medium term, including the Bipole III transmission project and the Keeyask and Conawapa generation stations. This is expected to lead to an increase in debt levels, which will likely cause credit metrics to decline moderately over the medium term. The Utility generated a free cash flow deficit of $557 million for the year ended March 31, 2012 (F2012). Free cash flow deficits were funded through debt, a trend expected to continue over the next several years. DBRS expects free cash flow deficits going forward will remain manageable.

Today’s report and the September 4, 2012, press release are available at www.dbrs.com or by contacting us at info@dbrs.com.