DBRS Removes EnerCare Solutions Inc. from Under Review with Developing Implications

DBRS has today removed EnerCare Solutions Inc.’s (ESI or the Company) Issuer Rating and Senior Notes from Under Review with Developing Implications. DBRS has also confirmed the Company’s Issuer Rating and Senior Notes at BBB (high) with Stable trends, following the closing of ESI’s acquisition of the Ontario home and small commercial services (OHCS) business from Direct Energy Marketing Limited (DE) for approximately $550 million (the Acquisition).

The Acquisition was funded in a prudent manner, with approximately $150 million in debt ($124 million to DE) and $433 million in equity ($417 million to DE). This was in line with DBRS’s assumptions as noted in its previous press release, dated July 25, 2014. As a result, DBRS views the Acquisition as neutral with respect to both ESI’s business risk and financial risk profile. DBRS notes that ESI should benefit from having control over all aspects of its water heater rental operations, but will face increased operational risk associated with servicing and maintaining the water heater portfolio going forward.

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.

DBRS’s ratings on EnerCare Solutions Inc. (ESI or the Company) are based on the DBRS methodology Rating Companies in the Consumer Products Industry (October 2013). However, DBRS views the Company’s strong franchise as having a superior business risk profile than that of a traditional consumer products company. As a result, the Company is able to manage higher leverage metrics.

Overall, in DBRS’s assessment of the credit quality of ESI, DBRS factors in the following key items: (1) competition arising from regulatory changes, (2) effects of attrition on customer base, (3) stability of cash flow generated from customer base, (4) flexibility to increase rental rates, (5) limited operational risk through a co-ownership agreement and (6) dependency on new home developments for growth.

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