DBRS Confirms FortisBC Holdings Inc. at BBB (high), Stable Trend

DBRS has today confirmed the rating of the Medium-Term Note Debentures (MTNs) of FortisBC Holdings Inc. (FHI or the Company) at BBB (high) with a Stable trend. The rating of FHI is based on the following factors:

(1) Reasonable dividends and investment income from its regulated utilities: FortisBC Energy Inc. (FEI; rated “A”), FortisBC Energy (Vancouver Island) Inc. (FEVI) and FortisBC Energy (Whistler) Inc. (FEW). DBRS’s focus is mainly on FEI and FEVI, which accounted for over 90% of consolidated cash flow of the Company for the 12 months ended December 31, 2012 (DBRS estimates). These utilities have stable cash flow generated from regulated natural gas transmission, distribution and storage operations. The regulatory framework in British Columbia has been reasonable.

(2) Strong non-consolidated credit metrics. FHI’s third party-debt-to-capital ratio of 6.6% (excluding inter-company debt) and cash flow before interest (CFBI)-to-third party interest ratio of 18.56 times for 2012 are in line with the current rating.

(3) Strong financial support from the parent. At the end of 2012, approximately 87% of FHI’s total debt was owed to its parent, Fortis Inc. (rated A (low)). Third party debt has been reduced to $126 million by the end of 2012 from $255 million in 2008 from loans provided by Fortis Inc.

FHI’s rating, which is two notches lower than FEI’s, reflects the following: (1) debt at FHI is structurally subordinate to debt at FEI; (2) debt at FHI is also structurally subordinate to the debt at FEVI and FEW, which have weaker creditworthiness than FEI due to their significantly smaller operations and respective customer bases; and (3) restrictive ring fencing conditions imposed on FEI, FEVI and FEW by the regulator, with respect to dividend payouts to FHI and their capital structures.

Notes:
All figures are in Canadian 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 North American Energy Utilities (Electric and Natural Gas) Industry, which can be found on our website under Methodologies.