DBRS Removes Emera Inc. from Under Review with Developing Implications

DBRS Limited (DBRS) has today removed Emera Inc.’s (Emera or the Company) Issuer Rating and the ratings of its Medium-Term Notes and Cumulative Preferred Shares from Under Review with Developing Implications. DBRS has also confirmed Emera’s Issuer Rating and Medium-Term Notes rating at BBB (high) and the Cumulative Preferred Shares rating at Pfd-3 (high), all with Stable trends. The rating actions follow DBRS’s review of Emera’s funding strategy for its medium-term growth plans, the repayment of the USD 350 million non-revolving credit facility used to partially finance the acquisition of the merchant New England Gas Generation assets, and the closing of a $250 million non-revolving credit facility by Emera Brunswick Pipeline Company (Emera Brunswick) in February 2015. Pro forma these transactions, Emera’s non-consolidated debt-to-capital has now decreased to below 30%. The rating actions also reflect the Company’s reasonable business risk profile for the current rating category and DBRS’s expectation that Emera will maintain its deconsolidated debt-to-capital metric below the 30% threshold.

Emera’s business risk profile remains commensurate with the current BBB (high) rating, underpinned by its relatively stable regulated subsidiaries that account for the majority of the Company’s earnings and cash flow (72% of adjusted net income in 2014), while also reflecting the higher volatility and risk inherent with its electricity generation and energy trading business (Emera Energy). In 2014, there were no material changes to the business risk profile of the Company’s regulated subsidiaries, resulting in relatively stable operating cash flows and earnings. For Emera Energy, its earnings contribution benefited from favourable market conditions, particularly in Q1 2014, and strong performance from the merchant New England Gas Generation fleet. This resulted in a higher proportion of non-regulated earnings and cash flow for the year. Over the medium term, DBRS expects Emera to maintain its regulated earnings in the 75% to 85% range to support its current business risk profile. Furthermore, Emera’s credit quality is expected to modestly improve upon the successful completion of the Maritime Link Project (Maritime Link) as planned. However, any additional, material increase in exposure to commodity pricing risk resulting in a significantly lower proportion of regulated cash flows and earnings could have negative rating implications.

Emera’s financial risk profile is based on its deconsolidated credit metrics, which were constrained following the acquisition of the New England Gas Generation assets. However, in February 2015, Emera repaid the USD non-revolving credit facility used to partially finance the acquisition, with proceeds from the sale of Northeast Wind Partners (NWP; USD 223.3 million). Emera also secured financing for Emera Brunswick in February 2015, by closing a $250 million non-revolving credit facility at the operating company level. Pro forma these transactions, Emera’s non-consolidated debt-to-capital is now below the 30% threshold. Going forward, DBRS expects Emera to finance its budgeted capex and equity contributions related to the Maritime Link and the Labrador-Island Link in a prudent manner to maintain its non-consolidated debt-to-capital below 30%. In addition, should there be any significant unforeseen costs or cash shortfalls, DBRS expects Emera to fund these primarily with equity (including preferred shares and dividend re-investment proceeds) to stay within the 30% threshold. If Emera is unable to do so, this could result in negative rating actions.

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.

The applicable methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry, Preferred Share and Hybrid Criteria for Corporate Issuers, and Rating Holding Companies and Their Subsidiaries, which can be found on our website under Methodologies.