DBRS Confirms AltaLink Investments, L.P. at BBB, Stable Trend

DBRS has today confirmed both the Issuer Rating and rating of the Senior Unsecured Bonds of AltaLink Investments, L.P. (AILP) at BBB with Stable trends. The rating confirmation is supported by the strong credit quality of its wholly owned operating subsidiary AltaLink, L.P. (ALP or OpCo; rated “A”), which is largely driven by its low-risk regulated transmission business, supportive regulatory environment in Alberta and adequate financial profile. OpCo’s regulated transmission business in Alberta accounts for 100% of total earnings and assets (see the AltaLink, L.P. rating report dated March 19, 2013).

AILP’s BBB Senior Unsecured Bonds rating is notched down from OpCo’s rating to reflect the following: (1) structural subordination of the parent relative to the operating company, (2) high degree of leverage at the AILP level and (3) reliance on a single operating subsidiary for cash distributions.

Over the near to medium term, financing requirements at OpCo are expected to be significant given its high level of capital expenditures (approximately $1.6 billion in 2013 and $1.9 billion in 2014). ALP intends to fund the capital requirements with 63% debt (directly issued at the OpCo level) and 37% equity (contributed from AILP), which is in line with its regulatory-approved capital structure. Of the 37% equity, 10% will be funded through debt issued at AILP with the remainder to be funded through internally generated cash flow and equity injections from the indirect owner, SNC-Lavalin Group Inc. (rated BBB (high)). The rating assumes that this financing strategy will remain intact. As a result, DBRS expects non-consolidated leverage at AILP to increase to around 40% to 45% over the medium term, which remains reasonable for the current rating category. AILP’s EBITDA interest and cash flow ratios also remain acceptable and are expected to be stable in the near to medium term.

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 (May 2011), which can be found on our website under Methodologies.