DBRS Confirms AltaLink, L.P. at “A,” R-1 (low), Stable Trends

DBRS Limited (DBRS) has today confirmed the ratings of AltaLink, L.P.’s (ALP or the Company) Medium-Term Notes (Secured) at “A” and Commercial Paper at R-1 (low). All trends are Sta¬ble. The confirmation reflects DBRS’s expectation that (1) the quality of the transmission regulatory regime in Alberta, which has shown signs of deterioration in 2015, will remain reasonable for the current rating category; (2) ALP will remain a pure re¬gional, low-risk transmission operator in Alberta; and (3) overall key credit metrics will gradually restore to the “A” rating catego¬ry, largely because of a substantial decline in capital investment commitments in the foreseeable future. The cash flow-to-debt ratio, which is currently weak for the rating, is expected to im¬prove to be commensurate with the “A” rating category (12.5% to 17.5%) over the next several years.

DBRS views the quality of the regulatory regime in Alberta as still being above average in North America as a result of the high level of cost certainty and downside protection under normal op¬erating conditions. These benefits mitigate negative effects from lower deemed return on equity and equity thickness ra¬tios approved in the Generic Cost of Capital decision in March 2015 and the dismissal of Alberta utilities’ appeal of the Utility Asset Disposition (UAD) decision to the Alberta Court of Appeal in September 2015. As noted in the DBRS commentary, DBRS Comments on Quality of Regulatory Regimes, dated July 23, 2015, the unfavourable UAD decision alone would not affect ALP’s credit ratings. DBRS will assess the impact of any stranded costs as a result of a UAD event on a case-by-case basis when such an event materializes. DBRS acknowledges that the recent Electric Transmission 2015 Interim Rates decision in January 2015 was reasonable, approving the application as filed and in-creased the tariff, effective January 1, 2015, to $60.8 million per month from $55.2 million per month.

With the downshifting of Alberta’s economy and near comple¬tion of the big build associated with electric transmission infra¬structure, capital expenditures are expected to further normalize over the next two years while earnings and OCF will benefit from a higher rate base. As a result, DBRS expects the cash flow-to-debt ratio to gradually recover to be in line with the current rating category over time. All other key metrics have re¬mained within the current rating category. The rating assumes that excess cash, which is not required to maintain the regulato¬ry capital structure, will flow up to the parent company, AltaLink Investments, L.P. (rated BBB by DBRS).

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 (October 2015) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2015), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.