DBRS Removes Reliance LP and Reliance Intermediate Holdings LP from Under Review with Developing Implications

DBRS Limited (DBRS) has today removed Reliance LP’s (OpCo or the Company) Senior Secured Notes and Reliance Intermediate Holdings LP’s (HoldCo) Issuer Rating and Senior Notes from Under Review with Developing Implications. DBRS has also confirmed OpCo’s Senior Secured Notes at BBB and HoldCo’s Issuer Rating and Senior Notes at BB (high), all with Stable trends, following the closing of the Company’s acquisition of National Home Services from Just Energy Group, Inc. for approximately $505 million (the Acquisition).

The Acquisition was funded in a prudent manner, using the $555 million of proceeds received from the sale of Reliance Protectron Inc. (the Disposition; see DBRS press release DBRS Places Reliance LP and Reliance Intermediate Holdings LP Under Review with Developing Implications, dated April 30, 2014, for more details). The remaining proceeds from the Disposition (approximately $50 million) are to be distributed to the parent as a special distribution. The rating confirmation assumes there will be no additional special distributions to the parent company, in line with DBRS’s assumptions as noted in its press release DBRS Comments on Reliance Acquisition of National Home Services, dated June 5, 2014. As a result, DBRS views the Acquisition as modestly positive with respect to OpCo’s business risk profile and neutral to its financial risk profile. DBRS notes that the Company should benefit from having 100% of its earnings and cash flows being generated from the relatively stable water heater rental business 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 Reliance LP and Reliance Intermediate Holdings LP (collectively, the Companies) are based on the DBRS methodology Rating Companies in the Consumer Products Industry (October 2014) and Rating Holding Companies and Their Subsidiaries (January 2014). However, DBRS views the Companies’ strong franchise as having a superior business risk profile than that of a traditional consumer products company. As a result, the Companies are able to manage higher leverage metrics.

Overall, in DBRS’s assessment of the credit quality of the Companies, 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.