DBRS Confirms Gaz Métro inc. at “A” and R-1 (low), Stable Trends

DBRS has today confirmed the ratings of Gaz Métro inc.’s (GMi or the Company) Issuer Rating and First Mortgage Bonds (FMBs) at “A”, and Commercial Paper (CP) at R-1 (low), all with Stable trends. The rating of GMi is based on the credit quality of Gaz Métro Limited Partnership (GMLP or the Partnership), which guarantees GMi’s FMBs, and a secured credit facility that supports the CP. GMi is the general partner of GMLP and serves as its financing entity. Funds raised by GMi are loaned to the Partnership on similar terms and conditions.

The credit quality of the Partnership is supported by its low business risk, as most of its earnings are generated from regulated energy distribution (88% of reported EBITDA) and regulated pipelines and storage businesses (9% of reported EBITDA), with the remaining earnings from the non-regulated business. Cash flow stability is underpinned by a supportive regulatory regime in Québec, a reasonable regulatory framework in Vermont and contractual agreements in the pipeline operations. With no commodity price risk, GMLP benefits from a revenue stabilization mechanism, which mitigates volume risk in Québec, where a substantial portion of its earnings are generated.

The acquisition of Central Vermont Public Service Corporation (CVPS), which was funded with 50% debt and 50% equity, closed in June 2012 (the Acquisition). DBRS views the impact of the Acquisition on GMLP’s business risk profile as modestly positive, since it further diversifies GMLP’s sources of cash flow and expands the Partnership’s comparatively lower-risk energy distribution business. Following the Acquisition, GMLP’s unconsolidated debt-to-capital improved modestly (to 52.2%) and remained in line with its regulatory capital structure of 54% debt. All other consolidated and unconsolidated credit metrics remained commensurate with the current rating. In addition, DBRS recognizes that under the partnership agreement, GMLP must invest at least 90% of its assets in the regulated sector.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The rating of Gaz Métro inc.’s First Mortgage Bonds is guaranteed by Gaz Métro Limited Partnership.

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.