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 ratings reflect Innergex’s fully contracted and diversified portfolio, which mitigates the Company’s exposure to the currently depressed wholesale power prices in North America in the medium term. However, the ratings remain constrained by the Company’s aggressive expansion plan, combined with weak credit metrics that are below average compared to its peers.

Innergex’s business risk profile is in the BBB rating range. The Company has a fully contracted portfolio through the use of long-term power purchase agreements (PPAs). The weighted-average remaining life is above average, at approximately 20 years, as assets are relatively new, with a weighted-average age of approximately only six years. While Innergex incurred an upward revision to some of its estimated project costs due to higher construction costs (see Projects Under Construction and Development), DBRS continues to view the development risk from Innergex’s pipeline of development projects as manageable, given the Company’s development expertise with similar small-scale hydro and wind facilities.

Innergex’s financial risk profile remains weak and is reflective of a B rating range. While Innergex’s EBITDA and operating cash flow continued to increase due to sustained organic growth, DBRS remains concerned about Innergex’s aggressive financing strategy for its development pipeline, combined with the Company’s high dividend payout. As the Company continued to pursue its growth plans, the Company’s deconsolidated leverage increased to 30.5% as of December 31, 2013, from 24.5% as of December 31, 2010. Furthermore, consolidated leverage increased to 68.3% as of December 31, 2013 (from 56.7% as of December 31, 2010), and could exceed 70% over the next several years, further pressuring the balance sheet. Should the Company’s financial profile deteriorate further, this could result in 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.

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