DBRS Comments on Atlantic Power Corporation’s Announced Agreement to Sell Three Florida Facilities

DBRS notes that Atlantic Power Corporation (ATP or the Company) has today announced an agreement (the Sale) to sell three Florida facilities (Auburndale Power Partners Limited Partners, Lake Cogen, Ltd., and Pasco Cogen, Ltd.), totalling a net capacity of 397 MW, to Quantum Utility Generation, LLC. The Sale has a purchase price of approximately $136 million, and ATP expects to receive net cash proceeds of approximately $111 million in the aggregate, after repayment of certain project-level debt. The Sale is expected to close in the first quarter of 2013, subject to customary closing conditions and approvals.

The rating of Atlantic Power Limited Partnership (APLP; rated BB with a Stable trend) is based on the credit quality of ATP, given that APLP guarantees the majority of ATP’s debt at the holding company level. As a result, DBRS’s analysis will focus on the credit impact on ATP. Overall, DBRS views this transaction as moderately positive on ATP’s credit risk profile.

(1) BUSINESS RISK PROFILE – Moderately Positive
Based on its review, DBRS views the Sale as moderately positive with respect to ATP’s business risk profile, due to the following: (1) the divestiture of generation facilities with expiring power contracts in 2013; (2) reduced exposure to the unfavourable Florida power market; (3) minimal impact on ATP’s size and diversification benefits, due to the relative scale of the Sale; and (4) the expected increase in the average power contract life for ATP’s remaining assets, upon the completion of the Sale.

(2) FINANCIAL RISK PROFILE – Moderately Positive
The Company intends to use the net proceeds from the Sale to fully repay ATP’s senior credit facility, which is expected to have an outstanding balance of approximately $67 million at close, and for general corporate purposes. This is expected to moderately improve ATP’s consolidated debt-to-capital ratio and other key credit metrics. Pro forma the Sale, the debt-to-capital ratio is expected to decrease to approximately 59.3% (excluding non-recourse debt at project levels), versus 59.6% as at September 30, 2012.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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