DBRS Confirms Innergex Renewable Energy Inc. at BB (high), Pfd-4 (high), Stable Trends

DBRS has today confirmed the Issuer Rating of Innergex Renewable Energy Inc. (Innergex or the Company) at BB (high) and its Preferred Shares rating at Pfd-4 (high), both with Stable trends. The confirmation reflects the Company’s reasonable overall business risk profile. The Company’s exposure to the currently depressed wholesale power prices in North America are mitigated, since the Company is fully contracted through the use of long-term power purchase agreements (PPAs) with a weighted-average remaining life of 19.1 years. In addition, given its relatively new assets, with a weighted-average age of approximately six years, maintenance capital expenditures are expected to be minimal in the near to medium term. Innergex also has a strong pipeline of development projects that will allow the Company to increase its diversification and maintain a relatively long duration for the remaining life of its PPAs.

During the nine months ended September 30, 2013, Innergex’s EBITDA continued to increase due to continued organic growth, acquisition of the Brown Lake, Miller Creek and Magpie facilities and above-average hydrology. However, DBRS remains concerned about Innergex’s aggressive financing strategy for its development pipeline. As the Company continues to pursue its specified growth plans, consolidated leverage has increased to 67.8% as of September 30, 2013 (from 64.6% as of December 31, 2012), and could exceed 70% over the next several years. Due to the Company’s aggressive financing strategy and its high dividend payout, Innergex’s key credit metrics (on both a consolidated and deconsolidated level) remain significantly weaker than its peers. While re-contracting risk is not a concern in the short to medium term, it remains a long-term concern for the Company. As the PPAs expire, DBRS expects Innergex’s cash flows to face increasing pressure from 2019 to 2024, while its overall leverage is expected to remain high due to the Company’s use of non-amortizing debt. Should deconsolidated leverage increase to 35%, this could result in further negative rating action.

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

This is an unsolicited rating. This rating was not initiated at the request of the issuer or rated entity and did not include participation by the issuer or any related third party.

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 Non-Regulated Electric Generation Industry, which can be found on our website under Methodologies.