DBRS Updates Its Report on SaskPower

DBRS has today updated its report on Saskatchewan Power Corporation (SaskPower or the Company). The credit quality of Saskatchewan Power Corporation reflects the ratings of the Province of Saskatchewan (the Province; rated AA; see DBRS’s report on the Province dated August 1, 2012). Both the outstanding Short-Term Obligations and Long-Term Obligations of SaskPower represent a direct obligation (see the methodology DBRS Criteria: Guarantees and Other Forms of Explicit Support for further detail) of the Province; thus, the ratings of the Company are a flow-through of the Province’s ratings. The Province supports SaskPower by allowing it to obtain funding from the Saskatchewan Ministry of Finance. As a result, SaskPower does not issue debt directly in the capital markets.

Over the past few years, SaskPower’s capital expenditures (capex) have been well over historical depreciation as the Company invested substantially in growth projects. As a result, leverage has increased to 69.4% in 2012 from 62.8% in 2008, which has led to a moderate decline in credit metrics. However, SaskPower’s leverage remains reasonable compared to its government-owned peers, which generally have a leverage of approximately 70%. Over the next 10 years, SaskPower expects to continue to undergo a substantial capex program (approximately $1.15 billion for 2013). In 2012, SaskPower’s earnings and cash flow were lower due mainly to higher fuel and operating costs. However, earnings in 2012 were more normalized compared to the substantial earnings in 2011 and 2010. Combined with the continued high build-out phase, DBRS expects regular dividends to continue to be suspended in 2013 (the Company paid a special dividend of $120 million in 2012, due to higher than expected earnings in 2011). The Company generated a free cash flow deficit of $646 million in 2012, which was funded with advances from the Province. DBRS expects the Province to continue fund cash flow deficits pursuant to The Power Corporation Act, which authorizes SaskPower to have outstanding borrowings of up to $5 billion, with $1.4 billion in temporary loans through the Saskatchewan government, $51 million from unsecured credit facility at financial institutions and approximately $1.4 billion unused as at December 31, 2012.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Companies in the North American Utilities (Electric and Natural Gas) Industry, which can be found on our website under Methodologies.