DBRS Confirms Valener Inc. at Pfd-2 (low), Stable Trend

DBRS Limited (DBRS) has today confirmed Valener Inc.’s (Valener or the Company) Cumulative Rate Reset Preferred Shares, Series A rating at Pfd-2 (low) with a Stable trend. Valener’s preferred share rating is based on the credit quality of Gaz Métro Limited Partnership (the Partnership), which guarantees the First Mortgage Bonds and Senior Secured Notes (rated “A”) of Gaz Métro inc. The one-notch differential in the ratings of Valener and the Partnership reflects the structural subordination at Valener.

For the fiscal year ended September 30, 2015 (F2015), Valener’s operating cash flow continued to support its common and preferred shares dividend payments ($33.8 million and $4.4 million, respectively). The Company’s operating cash flow primarily consists of distributions from its 29% ownership in the Partnership and, to a lesser extent, distributions from its financial interest in wind farm projects. Distributions received from GMLP and the wind assets combined improved favourably to $53.5 million in F2015 from $50.4 million in F2014, driven by record results at GMLP and strong wind farm performance. The distributions from the aforementioned entities are expected to further rise in F2016 as a result of the sustained growth of GMLP’s regulated activities.

Although distributions from the Partnership could be curtailed if the viability of the Partnership were to need safeguarding, the Partnership has historically provided stable distributions to its equity holders. The Partnership has made cash distributions to its partners in an amount of over 90% of its net income, excluding non-recurring items, for most of the last 20 years.

As the Company has no bonds/debentures issued, and is not expected to issue any long-term debt in the foreseeable future, its leverage solely consists of its credit facility outstanding. As at September 30, 2015, Valener utilized approximately $120 million of the $200 million credit facility which matures on September 30, 2020. Valener’s debt-to-capital ratio was reasonable at approximately 14.3% as at September 30, 2015. Valener is expected to fund future growth investments in a prudent manner to maintain leverage within the 20% threshold. If Valener is unable to do so on a sustained basis, this could result in a negative rating action. Other key non-consolidated credit metrics have also remained supportive of the current rating category, including cash flow-to-interest at 38.8 times, cash-flow fixed coverage at 10.4 times and cash flow-to-debt at 49.7% in F2015.

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), DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (January 2015) and DBRS Criteria: Rating Holding Companies and Their Subsidiaries (January 2015), which can be found on our website under Methodologies.