DBRS Confirms Liberty Utilities Finance GP 1 at BBB (high), Stable

DBRS has today confirmed both the Issuer Rating and Series A Senior Notes of Liberty Utilities Finance GP 1, a guaranteed issuer for Liberty Utilities Co. (LU or the Company), at BBB (high), both with Stable trends. The ratings are based on the credit quality of Liberty Utilities Finance GP 1’s guarantor, Liberty Utilities Co., which reflects the Company’s stable cash flows from regulated operations, its diversified portfolio and its solid credit metrics.

The credit quality of LU benefits from regulated operations that operate under reasonable regulatory frameworks with a high concentration of residential and commercial customers. LU’s regulated operations operate primarily under a cost-of-service (COS) model that allows the Company to recover prudently incurred operating costs and capital expenditures. The Company has continued to pursue growth through acquisitions, including the closing of the Georgia natural gas distribution utility on April 1, 2013, and the pending acquisition of New England Gas Company (expected to close in H2 2013). These target utilities have reasonable regulatory mechanisms, including weather normalization mechanisms that reduce volumetric risk and earnings volatility. However, while LU is undergoing rapid growth and continues to acquire relatively small utilities, integration of the new business will remain a key challenge going forward.

DBRS expects the Company to continue funding its acquisitions and future growth projects with a relatively conservative financing strategy, thus maintaining a debt-to-capital ratio at or below 55%. The cash flow-to-total debt ratio declined following the recent acquisitions of the remaining 49.999% interest in California Pacific Electric Company, Granite State Electric Utility, EnergyNorth Gas Utility and Midwest Gas Utilities (collectively, the Acquisitions), as this metric only reflected a partial year’s earnings contributions from the Acquisitions. With a full year of cash flow contributions from the Acquisitions, DBRS expects the cash flow-to-total debt ratio to remain reasonable at approximately 13%.

Notes:
All figures are in U.S. 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, which can be found on our website under Methodologies.