DBRS Confirms ATCO Ltd. at A (low) and R-1 (low), Stable Trends

DBRS has today confirmed the Issuer Rating and Short-Term Issuer Rating of ATCO Ltd. (ATCO or the Company) at A (low) and R-1 (low), respectively, both with Stable trends. The confirmations reflect the strong credit quality of ATCO’s principal subsidiary, Canadian Utilities Limited (CU, rated “A”; 52.9% owned by ATCO), and very low leverage at the parent level. The one-notch differential in the ratings of ATCO and CU reflects structural subordination of debt at ATCO.

CU’s contributions account for approximately 70% of ATCO’s total 2012 consolidated earnings with CU Inc. (rated A (high)), CU’s primary regulated entity, accounting for approximately 40% of consolidated earnings. CU’s earnings contributions are expected to grow over the medium term, primarily due to the expected rate base growth in the regulated utilities operation. Earnings contributed from a higher-risk business, ATCO Structures & Logistics (ASL), remain reasonable at approximately 30% of total earnings. ASL continues to provide stable earnings and cash flows to ATCO as it benefits from increased business activity in its manufacturing and rental fleet segment. Earnings contribution from ASL is expected to remain relatively stable over the near-to-medium term. DBRS expects ATCO to continue to manage these operations selectively in such a way that they will not represent a significant portion of consolidated earnings but will rather provide incremental benefits.

ATCO has no bonds/debentures issued at the parent level and is not expected to have any debt at the parent level. ATCO utilizes a small portion of its $200 million committed and $17 million uncommitted credit facilities from time to time for general corporate purposes.

ATCO’s operating cash flow is primarily made up of dividends from its 52.9% ownership of CU. Cash flows from CU to ATCO (consisting of distributions) have been sufficient to cover ATCO’s dividends to its shareholders. ATCO’s dividend payout ratio remains reasonable.

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 North American Energy Utilities (Electric and Natural Gas) Industry (May 2011), which can be found on our website under Methodologies.