DBRS Confirms Ratings of Canadian Utilities Limited at “A”, R-1 (low) and Pfd-2 (high), Stable Trends

DBRS has today confirmed the ratings of the Unsecured Debentures and Issuer Rating of Canadian Utilities Limited (CU or the Company) at “A,” along with confirming the Commercial Paper and Cum. Preferred Shares at R-1 (low) and Pfd-2 (high), respectively, all with Stable trends. The confirmation reflects (a) the low-risk regulated electric and gas business of its wholly owned subsidiary, CU Inc. (CUI; rated A (high) by DBRS), which accounts for approximately 65% of consolidated earnings, (b) the self-sustaining and minimal funding requirements for its non-regulated operations, and (c) the low level of debt at the holding company level ($200 million). The one-notch differential in the ratings of CU and CUI primarily reflects structural subordination at CU.

Over the near term, financing requirements at CUI are expected to be significant given the high level of total capital expenditure (capex) of $4 billion in 2014 and 2015 (see CUI report dated September 11, 2014, for more details). CUI is expected to continue to finance its capex through its own debt issuances and through equity injections from CU (approximately $100 million to $150 million for 2014). The Company has funded these injections through issuing preferred shares and through its Dividends Reinvestment Plan. DBRS assesses CU’s financial risk profile on a non-consolidated basis and considers the adjusted debt-to-capital ratio as an important metric. The preferred share issuances have resulted in an increase in the Company’s non-consolidated total adjusted debt-to-capital ratio to approximately 9% in 2013, from 6% in 2012. However, this ratio remains well below the DBRS 20% threshold. Should the Company’s non-consolidated adjusted debt-to-capital ratio increase above the 20% threshold, this could result in negative rating implications.

DBRS notes that although CU’s other operations provide some diversification benefits to the Company, this is largely negated by the higher risk associated with these operations when compared to CUI. Additionally, while these operations have historically been self-sustaining, they are expected to require some funding from CU over the near term. Going forward, DBRS does not expect the Company to issue any additional debt at the holding company level and to finance any cash shortfalls at these subsidiaries through preferred share issuances.

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.

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

The applicable methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry (January 2014), Rating Holding Companies and Their Subsidiaries (January 2014), Preferred Share and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions) (December 2013) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (February 2014), which can be found on our web site under Methodologies.

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