DBRS Downgrades Reliance LP and Reliance Intermediate Holdings LP

DBRS Limited (DBRS) has today downgraded Reliance LP’s (OpCo) Senior Secured Notes to BBB (low) from BBB, and Reliance Intermediate Holdings LP’s (HoldCo) Issuer Rating and Senior Notes to BB from BB (high). All trends are Stable. The rating actions follow DBRS’s review of OpCo’s and HoldCo’s (collectively, the Companies) 2015 financing plan, and mainly reflect the increasing consolidated leverage, along with the aggressive distribution payouts since 2010, which have limited the Companies’ financial flexibility. Going forward, DBRS will continue to monitor the Companies’ results on both a non-consolidated and consolidated basis as HoldCo primarily relies on one single entity (OpCo) to meet interest obligations. The current ratings of OpCo and HoldCo assumes that the $150 million special distribution will be eventually paid out to the owner, Alinda Capital Partners LLC (see the DBRS press release, “DBRS Places Reliance LP and Reliance Intermediate Holdings LP Under Review with Negative Implications,” dated January 27, 2015, for more details).

Further negative rating actions may occur should the Companies announce additional special distributions which, combined with the ongoing aggressive distribution payouts, may result in deterioration in the cash flow-to-debt ratios from current levels.

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 Rating Companies in the Consumer Products Industry (October 2014) and Rating Holding Companies and Their Subsidiaries (January 2015) methodologies, which can be found on our website under 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.