DBRS Confirms Gaz Métro inc. at “A,” Stable

DBRS Limited (DBRS) has today confirmed the ratings of Gaz Métro inc. (GMi or the Company) as listed below, all with Stable trends. The ratings of GMi are based on the credit quality of Gaz Métro Limited Partnership (GMLP or the Partnership), which guarantees GMi’s First Mortgage Bonds (FMB), Senior Secured Notes and a secured credit facility that supports the Commercial Paper (CP). GMi is the general partner of GMLP and serves as its financing entity. Funds raised by GMi are loaned to the Partnership on similar terms and conditions.

The credit quality of the Partnership is largely based on its sizable and diverse portfolio of low-risk regulated utilities assets. The business risk profile is strongly supported by (1) regulated gas distribution operations in Québec, which benefit from a supportive regulatory framework with no exposure to commodity price risk and a rate stabilization program to manage volume risk; (2) regulated electricity and gas distribution operations in Vermont with modest volume risk and manageable energy cost risk; (3) regulated cash flow from its natural gas transportation business, which includes a 50% interest in Trans Québec & Maritimes Pipeline Inc. (TQM), a 38.3% indirect interest in Portland Natural Gas Transmission System (PNGTS) and Champion Pipe Line Corporation Limited (Champion), a wholly owned subsidiary of the Partnership. These regulated operations account for substantially all of the Partnership’s net income in fiscal year 2014 (F2014). The Partnership’s business profile is further supported by the Partnership Agreement that stipulates that GMLP may invest no more than 10% of its total assets (on a non-consolidated basis) outside of the regulated energy sector (2.9% as at September 30, 2014). This helps maintain the stability of the Partnership’s long-term business risk profile in the event that GMLP expands its business in the future. On a non-regulated activity basis, DBRS believes the Partnership Agreement does not have a material impact on the Partnership’s business risk profile as (1) the amount of investment in the non-regulated activities, including liquefied natural gas (LNG) activities, is very modest and (2) Seigneurie de Beaupré Wind Farms 2 and 3 (25.5% owned), commissioned in Q1 F2014, and Wind Farm 4 (25.5% owned), completed in December 2014, have all of their output sold to Hydro-Québec (rated A (high) with a Stable trend by DBRS) under long-term contracts.

The Partnership’s consolidated financial risk profile remained relatively stable in F2014. Most of its consolidated metrics were consistent with the current rating category. Although the consolidated debt-to-capital ratio (67.9%) was slightly above the “A” rating range, the non-consolidated debt leverage was only 55.6%, consistent with the current rating. Going forward, DBRS does not expect any significant change in the Partnership’s financial profile as its estimated capex for F2015 (approximately $460 million) is expected to be financed through a reasonable mix of debt and equity.

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.