DBRS Confirms Enwave Energy Corporation at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating, the Senior Secured Notes rating and the Senior Term Facility rating of Enwave Energy Corporation (Enwave or the Company) at A (low), all with Stable trends. The ratings reflect stable cash flow underpinned by long-term contracts, a diverse and solid customer base, limited competition in the Company’s service area and good growth potential. The Stable trend reflects the Company’s improved financial metrics in H1 2015. These metrics are expected to improve further over the medium term as the customer base growth is consistent with DBRS’s expectation.

The customer profile remained stable since the last rating report with a solid and diverse customer base including governments, hospitals, educational institutions and data centres. The customer base was further supported with three additional buildings connected to Enwave’s system, which supported EBITDA and cash flow growth. The contract profile remained largely unchanged with the average length of over 10.2 years (for heating) and 11.6 years (for cooling). Over 80% of revenues are generated from capacity contracts that allow the Company to charge a fixed rate to customers regardless of the volume consumed, significantly reducing volume risk, and to pass though fuel costs (mostly natural gas and electricity), eliminating its exposure to commodity price risk. The remaining cash flow is generated from either non-capacity contracts or based on usage, exposing the Company to some volume risk; however, this volume risk is modest since the non-capacity contracts currently benefit from strong demand-supply fundamentals.

The ratings recognize higher debt-related metrics after Enwave’s recapitalization in July 2013 that includes: (1) the issuance of the Series A Notes ($120 million), (2) a $20 million new revolving credit facility and (3) additional semi-amortizing Senior Term Loan of $75 million. Most of the new debt was used to pay off the acquisition facility of $100 million and to finance the expansion capital expenditures (capex) in 2013 and 2014; however, in the first six months of 2015, most credit metrics improved significantly from 2014 and were consistent with DBRS’s expectation. DBRS notes that the cash flow-to-debt still remained modestly weak for the current rating range; however, the Stable trend is based on DBRS’s expectation that Enwave would improve cash flow-to-senior debt to around 12.5% and reduce senior debt-to-EBITDA to under 6.0 times over the medium term and maintain these levels on a sustainable basis. In addition, DBRS expects the Company to prudently manage its growth-related capex as significant delays or cost overruns could negatively affect cash flow, liquidity and leverage.

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 methodology is Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry (October 2015), which can be found on our web site under Methodologies.

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