DBRS Comments on Liberty Utilities Co.’s Acquisition of New England Gas Company

DBRS notes today that Liberty Utilities Co. (LU or the Company, whose wholly owned finance subsidiary and guaranteed issuer Liberty Utilities Finance GP1 is rated BBB (high) with a Stable trend) has announced its acquisition of New England Gas Company (NEGAS). The acquisition cost is approximately $74 million (including $19.5 million of existing debt) and is expected to close in the second half of 2013, subject to various regulatory approvals.

NEGAS is a natural gas distribution utility located in Massachusetts and services municipalities including Fall River and North Attleboro. The acquisition includes 600 miles of distribution pipeline assets, three gate stations, and a liquefied natural gas (LNG) peaking facility. NEGAS’s customer base is primarily made up of residential customers (approximately 92%) and small commercial customers (approximately 8%). The acquisition also includes approximately $3 million of water heaters and natural gas conversion burners leased under long-term contracts in the non-regulated water heater business.

DBRS’s analysis will focus on the impact of the proposed transaction on the Company’s business and financial risk profiles. Overall, DBRS views this acquisition as having no material impact on the current BBB (high) rating.

(1) Business Risk Profile – Modestly Positive
Based on a preliminary review, DBRS views the proposed acquisition as modestly positive with respect to LU’s existing business risk profile. NEGAS operates in a supportive regulatory environment and its acquisition will allow LU to further diversify its existing utility portfolio. However, these benefits are relatively modest in view of the small size of the acquisition.

(2) Financial Risk Profile – Modestly Negative
In terms of the proposed acquisition and LU’s funding strategy, DBRS views the impact on the Company’s financial risk profile as modestly negative. DBRS expects the Company’s debt-to-capital ratio to rise toward its targeted capital structure of approximately 50% to 55% debt-to-capital, which is reasonable for the current rating category.

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

The applicable methodology is Rating Companies in the North American Energy Utilities (Electric and Natural Gas) Industry (May 2011), which can be found on our website under Methodologies.