DBRS Confirms Capital Power Corporation at Pfd-3 (low), Stable

DBRS has today confirmed the ratings of the Preferred Shares of Capital Power Corporation (CPC or the Company) at Pfd-3 (low) with a Stable trend. CPC’s preferred shares rating is based on the credit quality of its subsidiary, Capital Power L.P. (CPLP; rated BBB). The one-notch differential in the ratings of CPC and CPLP reflects structural subordination at CPC, which is largely dependent on its own resources and dividends from CPLP. Dividends from CPLP could be curtailed if the viability of CPLP needs to be safeguarded.

CPLP has continued to provide stable distributions to its equity holders (based on CPC’s increasing ownership, this amounted to approximately $80 million and $50 million in 2012 and 2011, respectively), which in turn supported CPC’s common and preferred share dividend payments. In 2012, CPC distributed $6 million to its preferred shareholders and $62 million to its common shareholders ($6 million and $51 million to preferred and common shareholders, respectively, in 2011). With the introduction of the CPC Dividend Reinvestment Program (DRIP) in 2012, CPC also provided $19 million in dividend reinvestment to common share DRIP participants. DBRS expects CPLP to remain a stable source of distribution in the medium term.

CPC has no debt issued at the parent level and is not expected to issue any debt in the foreseeable future. In March 2013, CPC issued $200 million of preferred shares, with the net proceeds (approximately $194 million) to be lent to CPLP to repay the outstanding balance under its credit facilities and to finance growth projects, including the Shepard Energy Centre. Pro forma the $194 million issuance, CPC will have $462 million of preferred shares outstanding, $131 million of which is treated as debt by DBRS in CPC’s adjusted debt-to-capital calculation (with a pro forma adjusted debt-to-capital ratio of approximately 6%). In the adjusted debt-to-capital calculation, the amount of preferred shares over the 20% preferred shares-to-equity threshold (defined as the percentage of preferred shares outstanding divided by total equity, excluding preferreds and minority interest) is treated as debt. CPC’s adjusted debt-to-capital ratio remains in line with its rating category. In addition, the pro forma unconsolidated fixed charge coverage ratio is expected to remain high, at above five times.

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