DBRS Confirms Reliance LP at BBB, Stable

DBRS has today confirmed the Senior Secured Notes rating of Reliance LP (OpCo or the Company) at BBB with a Stable trend. The rating reflects the Company’s stable credit profile, underpinned by a stable water heater rental and HVAC business (heating, ventilation and air conditioning) and a reasonable financial profile.

The credit quality of the Company is supported by the stable cash flow and strong operating characteristics of its water heater rental and HVAC businesses, which benefit from a large customer base. Modest annual rate increases have led to steady growth in EBITDA over the past few years. The Company’s current ratings are limited by its parent’s (Reliance Intermediate Holdings LP or HoldCo; rated BB (high), Stable) reliance on OpCo to service its high debt level, the exposure to a higher-risk security monitoring business, as well as increasing competition in the water heater business. Over the past five years, OpCo has experienced an increase in its attrition rate; however, net customer growth remained positive as new customer additions through acquisitions and new housing starts offset the loss of customers from attrition. In addition, the Company’s security monitoring business entails higher risk relative to the water heater rental business, although it provides some diversification benefits and opportunities for earnings growth. OpCo’s security operation benefits from a large customer base with a high percentage of recurring monthly revenue.

OpCo’s financial profile has been reasonable as interest coverage and cash flow ratios remained in line with the current rating range. Although debt leverage has increased considerably since 2009 due to high distributions and debt financing of growth capex and customer acquisitions, this is mitigated by a reasonable EBITDA-to-interest coverage ratio and cash flow-to-debt ratio. In December 2012, OpCo mitigated its refinancing risk by repaying existing indebtedness with the Senior Secured Notes issuances ($700 million in aggregate). OpCo’s liquidity position also improved as a result of the increased headroom on its new revolver. Going forward, credit ratios are expected to benefit from lower future interest costs.

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 the Consumer Products Industry, which can be found on our website under Methodologies.