DBRS Places Reliance LP and Reliance Intermediate Holdings LP Under Review with Negative Implications

DBRS Limited (DBRS) has today placed Reliance LP’s (OpCo or the Company) Senior Secured Notes and Reliance Intermediate Holdings LP’s (HoldCo) Issuer Rating and Senior Notes Under Review with Negative Implications. This rating action follows OpCo’s planned $300 million debt issuance. The proceeds will be used to repay $150 million in existing indebtedness under the Company’s credit facility and the remaining proceeds will be used to finance a $150 million special distribution to its owner, Alinda Capital Partners LLC. This shareholder-friendly initiative will pressure the Company’s key credit metrics, including its cash flow-to-debt ratio. Following the planned debt issuance, OpCo’s cash flow-to-debt ratio is expected to fall below the minimum threshold of 20% for the current rating category. Despite this erosion, OpCo’s rating is expected to remain investment grade and a rating confirmation remains a possible outcome. DBRS will resolve this rating action pending a review of OpCo’s and HoldCo’s 2015 financing plan.

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.

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

DBRS’s ratings on Reliance LP and Reliance Intermediate Holdings LP (collectively, the Companies) are based on its Rating Companies in the Consumer Products Industry (October 2014) and Rating Holding Companies and Their Subsidiaries (January 2014) methodologies; 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.