DBRS Confirms Valener Inc. at Pfd-2 (low), Stable Trend

DBRS Limited (DBRS) has today confirmed Valener Inc.’s (Valener or the Company) Cumulative Rate Reset Preferred Shares, Series A rating at Pfd-2 (low) with a Stable trend. The rating is based on the stability of dividends distributed to the Company from its 29% interest in Gaz Métro Limited Partnership (GMLP), which guarantees the First Mortgage Bonds and Senior Secured Notes (rated “A”) of Gaz Métro inc. (GMi). The rating also reflects Valener’s low non-consolidated leverage. GMi owns the remaining 71% of GMLP.

Valener’s rating is based on the following factors:

(1) Strong and predictable cash flow from GMLP to Valener. GMLP has made cash distributions to its partners in an amount of over 90% of its net income, excluding non-recurring items, for most of the last 20 years. Under the Partnership Agreement, GMLP is obligated to distribute at least 85% of its income (excluding non-recurring items) to the partners, except for the benefit of the lenders or as a result of regulatory changes. In the event that GMLP intends to distribute less than 85% of its net income excluding non-recurring items, it will require a resolution approved by at least 90% of GMi’s board of directors. The amount of cash distribution received by the Company has been more than sufficient to cover interest expense on credit facilities and preferred dividends.

(2) GMLP is expected to continue to maintain its distributions of at least 85% of its net income. Strong distributions made by the Partnership to Valener are supported by the Partnership’s sizable and diverse base of low-risk regulated utility and pipelines assets in Québec and Vermont. Since the debt at Valener is structurally subordinated to the debt at the Partnership, any deterioration of the credit quality of the Partnership could have a negative rating implication on the rating of Valener.

(3) Valener’s non-consolidated debt-to-capital ratio was well below 10% in F2014 and is expected to remain below 20% going forward. If its non-consolidated leverage rises to above 20%, Valener is expected to issue the equity needed to bring the ratio back under the 20% threshold in a timely manner.

(4) DBRS expects that the majority of Valener’s cash flow will be derived from GMLP. Any material investment carried out by Valener and not through GMLP could have a negative rating impact.

(5) DBRS expects that Valener will maintain its 29% interest in GMLP and its pro rata representation on GMi’s board of directors.

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