DBRS Places Algonquin Power Co. Under Review – Developing Following the Empire District Electric Company Acquisition Announcement

DBRS Limited (DBRS) has today placed the BBB (low) Issuer Rating and BBB (low) Senior Unsecured Debentures ratings of Algonquin Power Co. (APCo or the Company) Under Review with Developing Implications. This rating action follows the announcement that APCo’s parent company, Algonquin Power & Utilities Corp. (APUC, or the Parent), has entered into an agreement and plan of merger pursuant to which Liberty Utilities Co. (LUC) will indirectly acquire The Empire District Electric Company (Empire) and its subsidiaries (the Transaction).

LUC is a wholly owned subsidiary of APUC and owns a diversified portfolio of regulated assets. LUC is the guarantor of the Senior Notes issued by Liberty Utilities Finance GP1 (LUF), which are rated BBB (high). APUC is rated BBB (low) and Pdf-3 (low). Please note that the ratings of LUF and APUC have also been placed Under Review with Developing Implications (see separate press releases dated February 10, 2016).

Empire is an approximately 100% regulated electric, gas and water utility (mostly electric), serving approximately 218,000 customers primarily in Missouri and also in Kansas, Oklahoma and Arkansas. Empire engages in the generation (approximately 1,400 MW net capacity, ~60% natural gas), purchase, transmission, distribution and sale of electricity. The Transaction will be all cash and total consideration will be approximately $3.4 billion, including the assumption of approximately $1.3 billion of debt. All the outstanding debt from the acquired assets is at the regulated utility level. The purchase price represents a 50% premium to Empires unaffected share prices on December 10, 2015, and a 21% premium to the closing price on February 8, 2016. The Transaction is expected to close in Q1 2017, and is subject to the approval of Empire’s common shareholders and to various federal regulatory approvals including multiple utility commissions, the Federal Energy Regulatory Commission and the Federal Communications Commission.

The credit quality of APCo could be indirectly affected should the Parent’s credit profile significantly deteriorate following the Transaction. This reflects DBRS’s view that APCo partly relies on the Parent to provide equity injections to maintain key financial metrics within the rating category. In addition, if the Parent’s debt levels increase significantly following the Transaction, the Parent may require more dividends from APCo to service its debt.

DBRS will review the financing plan when it is finalized and further review the impact of the Transaction on APUC’s credit profile and any potential impact on APCo.

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.

The applicable methodology is Rating Companies in the Independent Power Producer Industry (August 2015), which can be found on our website under Methodologies.

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

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