DBRS Confirms AltaGas Ltd. at BBB with a Stable Trend

DBRS has today confirmed the ratings on both the Medium-Term Notes and Issuer Rating of AltaGas Ltd. (AltaGas or the Company) at BBB and on the Preferred Shares – Cumulative at Pfd-3, all with Stable trends. The confirmation reflects Company’s: (1) improving business risk profile, as almost 80% of the Company’s earnings are supported by either stable regulated returns or long-term contacts; (2) diversified sources of revenue from its Utilities, Power and Gas segments operating in Canada and the United States; (3) improved quality of earnings since the addition of utilities (SEMCO Energy Inc. and Pacific Northern Gas Ltd.) and cleaner power generation assets (Blythe Energy, LLC (Blythe)) to the Company’s portfolio. These new assets are primarily underpinned by long-term take-or-pay commitments, resulting in no incremental direct exposure to commodity price risk.

In May 2013, AltaGas completed the acquisition of Blythe, which owns the Blythe Energy Center, a 507 megawatt natural gas-fired combined cycle power plant in California. Blythe is fully contracted under a Power Purchase Agreement (PPA) through to July 2020 with Southern California Edison. DBRS in its press release had noted that the acquisition is expected to be accretive to earnings and cash flow, and modestly positive for the Company’s credit profile. DBRS also noted that the acquisition would improve AltaGas’s business risk profile and further diversify its power generation capacity (refer to DBRS press release from March 25, 2013). DBRS is moderately concerned that there is re-contracting risk on the Blythe PPA in 2020; however, the Blythe Energy Center has a strong operating history with a competitive heat rate performance (in the range of 7,000 to 7,500 British thermal units per kilowatt hour generated) and is likely to be well positioned for re-contracting purposes upon expiry of the PPA.

DBRS notes that in the past five years, AltaGas’s credit metrics have weakened due to its aggressive growth capital expenditures (capex) program, which has added approximately $4 billion in new and expanded assets. Company’s key credit metrics are expected to remain weak over the near term, but are expected to recover in the medium term as major projects come on stream and full-year benefits from new assets are realized. Going forward, DBRS expects the Company to finance its capex program with a prudent mix of equity and debt and maintain credit metrics consistent with its current rating.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Non-Regulated Electric Generation Industry and Rating North American Pipeline and Diversified Energy Companies, which can be found on our website under Methodologies.