DBRS Updates Its Report on ATCO Ltd.

DBRS has today updated its report on ATCO Ltd. (ATCO or the Company). For the nine months ended September 30, 2013 (9M2013), ATCO generated stronger earnings and operating cash flows than from the same period in 2012. This growth can largely be attributed to contributions from CU Inc. (CUI, rated A (high), Stable trend), the primary regulated entity of the Company’s principal subsidiary, Canadian Utilities Limited (CU, rated “A”, Stable trend). CUI, which accounts for approximately 44% of the Company’s consolidated earnings, continues to benefit from a supportive Alberta regulatory environment. The utility’s growing rate base, driven by investment in transmission infrastructures, will lead to a more stable risk profile for ATCO as DBRS views transmission operations as having the lowest risk among CU’s operations.

ATCO Structures & Logistics (ASL), which is regarded as the higher risk segment, provided 25% of consolidated earnings for 9M2013. With increased project activity in North America, this division is expected to continue to provide stable earnings and cash flows to ATCO over the near to medium term. DBRS views this earnings portfolio as reasonable and expects the Company to continue to manage ASL’s operations selectively in such a way that it will not represent a significant portion of consolidated earnings, but will rather provide incremental benefits.

ATCO’s operating cash flow is primarily made up of dividends from its 53.1% ownership of CU. Cash flows from CU to ATCO (consisting of distributions) have been sufficient to cover ATCO’s dividends to its shareholders. ATCO’s dividend payout ratio has remained reasonable at a low 20%.

ATCO has no bonds/debentures issued at the parent level and is not expected to have any debt at this level. The Company utilizes a small portion of its $200 million committed and $17 million uncommitted credit facilities from time to time for general corporate purposes. The one-notch differential in the ratings of ATCO and CU reflects structural subordination of debt at ATCO.

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

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.