DBRS Confirms ATCO Ltd. at A (low) and R-1 (low), Stable

DBRS has today confirmed the Issuer Rating and Short-Term Issuer Rating of ATCO Ltd. (ATCO or the Company) at A (low) and R-1 (low), respectively, both with Stable trends. The confirmations reflect the strong credit quality of ATCO’s principal subsidiary, Canadian Utilities Limited (CU, rated “A” by DBRS; 53.2% owned by ATCO), and no debt at the parent level. The one-notch differential in the ratings of ATCO and CU reflects structural subordination at ATCO with respect to CU.

CU’s contributions accounted for a substantial portion of ATCO’s total consolidated earnings (approximately 76% for the last 12 months ended June 30, 2014 (LTM 2014)). CU Inc. (CUI, rated A (high)), CU’s primary regulated entity that operates in electric and gas transmission and distribution, accounted for approximately 52% of ATCO’s consolidated earnings. Although CUI has a significant amount of planned capital expenditures (approximately $5.5 billion planned for the 2014 to 2016 period), it is not expected to require any support from ATCO. ATCO Structures & Logistics (ASL), which is regarded as the higher- risk segment, provided 21% of consolidated earnings for LTM 2014. DBRS views this earnings portfolio as reasonable and expects the Company to continue to manage ASL’s operations selectively in such a way that it will not represent a significant portion of consolidated earnings, but will rather provide incremental cash flow as well as product and geographic diversification. This segment is self-funding and does not require any funding from ATCO.

ATCO’s operating cash flow primarily consists of dividends from its principal subsidiary, CU. ATCO has no bonds/debentures issued at the parent level and is not expected to have any debt at this level. The Company uses a small portion of its $200 million committed and $17 million uncommitted credit facilities from time to time for general corporate purposes.

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 methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry and Rating Holding Companies and Their Subsidiaries, which can be found on our website under Methodologies.