DBRS Confirms Rating of Capital Power Corporation Preferred Shares, Pfd-3 (low), Stable

DBRS has today confirmed the rating of the Preferred Shares of Capital Power Corporation (CPC or the Company) at Pfd-3 (low) with a Stable trend. CPC’s preferred shares rating is based on the credit quality of its subsidiary, Capital Power L.P. (CPLP; rated BBB). The one-notch differential in the ratings of CPC and CPLP reflects structural subordination at CPC.

CPC’s operating cash flow on a deconsolidated basis is primarily made up of dividends from its 81% ownership of CPLP, which could be curtailed if the viability of CPLP needs to be safeguarded. In 2013, CPLP continued to provide stable distributions to its equity holders (approximately $86 million and $80 million in 2013 and 2012, respectively, to CPC). The distributions support CPC’s common and preferred shares dividend payments ($62 million and $20 million, respectively). In addition, through the CPC Dividend Reinvestment Program (DRIP), CPC also provided $27 million in dividend reinvestment to common share DRIP participants. DBRS expects CPLP to remain a stable source of distribution in the medium term.

CPC has no bonds/debentures issued at the parent level and is not expected to issue any debt in the foreseeable future. CPC currently has $464 million of preferred shares outstanding, of which $73 million is treated as debt by DBRS in CPC’s adjusted debt-to-capital calculation (adjusted debt-to-capital ratio was approximately 3% in 2013). In the adjusted debt-to-capital calculation, the amount of preferred shares over the 20% preferred shares-to-equity threshold (defined as the percentage of preferred shares outstanding divided by total equity, excluding preferreds and minority interest) is treated as debt. CPC’s adjusted debt-to-capital ratio remains in line with its rating category. In addition, the pro forma unconsolidated fixed charge coverage ratio is expected to remain high, at around four times.

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.

The applicable methodology is Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry, which can be found on our website under Methodologies.

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