DBRS Confirms AltaGas Ltd. at BBB, Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the Medium-Term Notes (MTNs) rating of AltaGas Ltd. (AltaGas or the Company) at BBB and its Preferred Shares – Cumulative rating at Pfd-3, all with Stable trends. The ratings reflect the Company’s well-diversified business risk profile with nearly 90% of the Company’s earnings generated from relatively low-risk predictable regulated utility returns and fee-based medium- to long-term contacts in the power and gas segments with investment-grade counterparties.

The Company’s utility segment rate base has grown through acquisitions and organic growth, and operates under supportive regulatory regimes contributing approximately 43% of the Company’s EBITDA (last twelve months (LTM) September 30, 2015). The Company’s installed power generation capacity reached 1527 megawatt (MW) in 2015, accounting for 26% of EBITDA supported by medium- to long-term contracts. The Northwest Hydro Projects, which include the 195 MW Forrest Kerr Hydro Electric project (Forrest Kerr), 16 MW Volcano Creek commissioned in 2014 and 66 MW McLymont Creek commissioned in October 2015, are all underpinned by a 60-year power purchase agreement (PPA) with BC Hydro (rated AA (high), Stable trend by DBRS). The recent acquisition of the 523 MW GWF Energy Holdings LLC (GWF) in northern California, which is expected to close in late 2015, is underpinned by PPAs with Pacific Gas and Electric Company (PG&E) until 2022 and is expected to add further diversification to the Company’s energy infrastructure portfolio through the addition of relatively low-risk, fully contracted and long-life gas-fired power assets in Northern California to its existing 507 MW Blythe Energy Inc. (Blythe) gas-fired plant located in Southern California, thereby expanding the Company’s presence in the California power market (for further detail, please refer to DBRS press release dated September 22, 2015). However, AltaGas is exposed to volume and commodity risk at its Gas and Power segments, which causes variability in earnings. The Company’s earnings continue to be negatively affected by the lower realized fractionation (frac) spreads and lower volumes processed in the gas segment due to significantly lower NGL spot prices. Weaker realized Alberta power prices have also affected the Company’s earnings from power generation in the Province, which accounts for approximately 27% of the Company’s total power generation.

DBRS believes that the Company’s credit metrics are at reasonable levels for the current rating based on its business risk profile. Company’s capital expenditures (excluding acquisitions) for 2016 are expected to be comparable with the $600 million to $700 million range expected for the full year 2015, primarily for the completion of the Townsend gas processing facility (expected in service in mid-2016) in the gas segment and system betterment programs and upgrades in the utilities segment. DBRS expects leverage to rise modestly in the near term but become more manageable once projects are placed in service and provide incremental cash flow. DBRS expects AltaGas to fund its growth projects and acquisitions with a prudent mix of debt and equity in order to maintain company’s debt-to-capital ratio in the low-50% range.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable DBRS methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry (October 2015), Rating Companies in the Pipeline and Diversified Energy Industry (January 2015) and Rating Companies in the Independent Power Producer Industry (August 2015) and Preferred Share and Hybrid Criteria for Corporate Issuers (January 2015), which can be found on our website under Methodologies.

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

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