DBRS Downgrades Innergex Renewable Energy Inc. to BB (high) and Pfd-4 (high), Changes Trends to Stable from Negative

DBRS has today downgraded the Issuer Rating of Innergex Renewable Energy Inc. (Innergex or the Company) to BB (high) from BBB (low) and the Preferred Shares rating to Pfd-4 (high) from Pfd-3 (low). DBRS has also changed the trends to Stable from Negative. When the trends were changed to Negative from Stable last August, DBRS stated that, considering the business risk profile of Innergex’s contracted renewable power portfolio and the structural protections of a non-recourse, project-financing strategy, deconsolidated leverage (i.e., debt at the holding company level) of over 30% and consolidated leverage of over 60% are viewed as not appropriate for maintaining investment-grade ratings. The ratings downgrade reflects DBRS’s view that Innergex’s aggressive financing strategy will result in weaker balance sheet strength driven by high dividend payouts and ongoing growth plans.

Although Innergex has planned to raise $125 million common equity in the coming months, DBRS expects the Company’s dividend payouts to remain high relative to earnings and to continue eroding the equity base. The high levels of dividends are also unsustainable given the Company’s announced growth plan, including the construction of seven projects with a total of approximately $812 million in spending expected for the next few years. With the debt portion of the funding plan, Innergex’s consolidated leverage ratio is expected to rise. In the absence of substantial corrective measures, DBRS no longer expects Innergex’s financial profile to remain consistent with investment-grade ratings. While the deconsolidated debt-to-capital ratio has improved to 30.4% from 32.3% in 2012, the consolidated total debt-to-capital and cash flow-to-total debt ratios have further weakened to 64.6% and 4.6%, respectively.

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.

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer and did not include participation by the issuer or any related third party.

The applicable methodologies are Rating Companies in the Non-Regulated Electric Generation Industry (May 2011), Rating Holding Companies and Their Subsidiaries (September 2012) and DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (November 2012), which can be found on our website under Methodologies.