DBRS Updates Report on Emera Inc.

DBRS has today updated the rating report for Emera Inc. (Emera or the Company). On August 28, 2013, DBRS placed Emera’s Issuer Rating and related ratings Under Review with Developing Implications. The timing of the rating action resolution will be predominately based on how Emera permanently refinances the debt raised for the merchant asset purchase from Capital Power L.P. (rated BBB). The Company purchased the 1,050 megawatts of Bridgeport Energy, Tiverton and Rumford gas-fired generation facilities (New England Gas Generation Assets) from Capital Power L.P. for approximately USD 541 million in November 2013. As noted in the DBRS press release dated August 28, 2013, DBRS views the acquisition as modestly negative with respect to Emera’s existing business risk profile. This non-contracted portfolio would account for approximately 25% of Emera’s total generating capacity, increasing the Company’s exposure to commodity price risk. Nevertheless, the current business risk profile of BBB (high) would not be deterred by this acquisition alone as Emera’s earnings and cash flow are largely generated by its relatively low-risk regulated subsidiaries (regulated subsidiaries accounted for approximately 80% of consolidated adjusted net income in 2013). Furthermore, Emera’s credit quality is expected to modestly improve upon the successful completion of the Maritime Link Project (Maritime Link) as planned. The Maritime Link is expected to grow Emera’s regulated earnings and cash flows once it is added to rate base in 2017, contributing to cash flow stability.

Emera’s financial risk profile is based on its deconsolidated credit metrics and is currently constrained for the BBB (high) rating category. The Company primarily financed the acquisition of the New England Gas Generation Assets with proceeds from a USD 350 million non-revolving credit facility that negatively pressured the Company’s deconsolidated debt-to-capital ratio. Pro forma the non-revolving credit facility and the $240 million equity issuance in January 2014, the deconsolidated debt-to-capital ratio is approximately 32%, which is above the 30% threshold to maintain the current rating category. DBRS expects the Company to refinance the non-revolving credit facility in a prudent manner to restore leverage within the threshold in the near term. Should Emera’s financing strategy deviate from the aforementioned leverage improvement, there could be negative rating implications. Other non-consolidated key credit metrics, including cash flow-to-debt and EBIT-interest coverage, remains in line with the BBB (high) rating category.

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

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.

The full report providing additional analytical details is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.