DBRS Confirms Gaz Métro inc. at “A,” Stable

DBRS has today confirmed the ratings of Gaz Métro inc. (GMi or the Company) as listed below, all with Stable trends. The ratings of GMi are based on the credit quality of Gaz Métro Limited Partnership (GMLP or the Partnership), which guarantees GMi’s First Mortgage Bonds (FMB) and Senior Secured Notes, and a secured credit facility that supports the Commercial Paper (CP). GMi is the general partner of GMLP and serves as its financing entity. Funds raised by GMi are loaned to the Partnership on similar terms and conditions.

The Partnership’s low business risk profile is supported by its (1) regulated gas distribution operations in Québec, (2) regulated electricity and gas distribution operations in Vermont and (3) regulated cash flow from its natural gas transportation business, which includes a 50% interest in Trans Québec & Maritimes Pipeline Inc. (TQM), a 38.3% indirect interest in Portland Natural Gas Transmission System (PNGTS) and Champion Pipe Line Corporation Limited, a wholly owned subsidiary of the Partnership. These regulated operations accounted for approximately 97% of reported FY2013 EBITDA, excluding corporate affairs. The remaining EBITDA was contributed from its regulated natural gas storage operations and higher but manageable risk non-regulated operations. DBRS recognizes that under the Partnership Agreement, GMLP must invest at least 90% of its assets on a non-consolidated basis in the regulated energy sector. In addition, the majority of regulated earnings are from Québec, where the regulatory framework is supportive and provides for a reasonable rate of return with no commodity price risk and limited volume risk due to its rate stabilization mechanism. In the non-regulated business, DBRS notes the commissioning of wind farms 2 and 3, which would reduce developmental risk and provide additional cash flow, as well as the creation of Gaz Métro LNG in FY2013, which are not expected to have a material impact on GMLP’s overall business risk profile.

Although the Partnership’s credit metrics in FY2013 were slightly weaker as compared to FY2012 due to rising debt levels to finance high capex, its credit metrics remained within the current rating category. In the 12 months ended March 31, 2014, the Partnership’s financial profile remained relatively stable, reflecting higher incremental earnings and cash flow to support higher debt levels.

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 (January 2014), which can be found on our website under Methodologies.

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