DBRS Confirms Algonquin Power & Utilities Corporation at BBB (low), Stable

DBRS has today confirmed the Issuer Rating and Preferred Shares of Algonquin Power & Utilities Corporation (APUC or HoldCo) at BBB (low) and Pfd-3 (low), respectively, both with Stable trends. APUC’s borrowings are structurally subordinated to the existing debt at its two primary operating subsidiaries (collectively, the OpCo) — Algonquin Power Co. (APCo; rated BBB (low)) and Liberty Utilities Company (LU), which is the guarantor of Liberty Utilities Finance GP1 (rated BBB (high)). As a result, the BBB (low) rating of APUC is one notch below the aggregate credit quality of the OpCo.

While the EBITDA contribution from the lower-rated segment of OpCo, APCo, accounted for a greater portion of consolidated earnings (60% of consolidated EBITDA) for the year ended December 31, 2012, contributions from both segments were approximately equal (APCo at 53% and LU at 47%) for the 12 months ended March 31, 2013. Contributions from both segments are expected to remain equal in the long term. As a result, DBRS does not anticipate APUC’s business risk to be negatively impacted.

Key financial metrics supporting the rating profile are in line with the current rating profile on a non-consolidated basis. APUC’s non-consolidated debt-to-capital has remained minimal and HoldCo intends to maintain debt at the HoldCo level well below the 20% threshold. HoldCo’s consolidated cash flow-to-total debt ratio decreased significantly in 2012 following a series of acquisitions, including Windsor Locks, St. Leon Expansion, Senate, Sandy Ridge, Minonk, Granite State Electric Utility, EnergyNorth Gas Utility, Midwest Gas Utilities and the remaining 49.999% interest in California Pacific Electric Company, LLC (collectively, the Acquisitions), in the second half of 2012, as this metric only reflected partial year cash flow contributions from the Acquisitions. With a full year of earning contributions from the Acquisitions, DBRS expects the cash flow-to-total debt ratio to remain reasonable at around 15%.

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 methodologies for this rating are Rating Companies in the Non-Regulated Electric Generation Industry, Rating Companies in the North American Energy Utilities (Electric and Natural Gas) Industry and Rating Holding Companies and Their Subsidiaries, which can be found on our website under Methodologies.